www.hudclips.org U. S. Department of Housing and Urban Development Washington, D.C. 20410-8000 July 15, 1993 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER MORTGAGEE LETTER 93-20 TO: ALL APPROVED MORTGAGEES ATTENTION: SERVICING MANAGERS (Single Family) SUBJECT: Servicing FHA-Insured Mortgages Affected by the Flood of 1993 The Department of Housing and Urban Development (HUD) is providing the following information to mortgagees and servicers of FHA-insured mortgages on one-to-four-family residences to assist them in responding to the flood victims. The relief measures described in this Mortgagee Letter are intended not only to mitigate the hardships faced by mortgagors with FHA-insured mortgages in areas affected by the flood, but also to allow mortgagees time to obtain the hazard insurance benefits that are available and to reduce the impact of the flood on claims submitted for FHA insurance benefits. Included are certain directives pertaining to a moratorium on foreclosures, as well as a series of recommended actions HUD/FHA would prefer that mortgagees take in regard to servicing the affected mortgages. I. MORATORIUM ON FORECLOSURES. The Department is hereby establishing a moratorium on the initiation of foreclosures in all the National Disaster Areas identified by FEMA, the Federal Emergency Management Agency, following the flood. The moratorium is effective as of the date of this Mortgagee Letter, and will expire in ninety (90) days, unless extended by HUD. Foreclosures already in process should be suspended for the duration of the 90-day period. The property has to be directly affected by the flood to be included in the moratorium. All mortgagors affected by the moratorium on foreclosures should be seriously considered for the recommended servicing actions enumerated below. In those cases where the moratorium causes the initiation of foreclosure to occur past the applicable foreclosure timeframe, the Department will grant an extension of up to 90 days for the mortgagee to initiate foreclosure. Extensions will have to be requested in writing from the HUD Field Office with jurisdiction over the properties. _____________________________________________________________________ 2 II. RECOMMENDED SERVICING ACTIONS. In addition to the above moratorium on foreclosures, HUD is strongly recommending that cases where the flood directly affected the condition of the property and/or the mortgagor's financial viability be given utmost consideration by mortgagees or their servicers for forbearance. The Department recommends exploration of one or more of the following, depending on the circumstances of each case. Refer to Chapter 8, "HUD-Approved Relief Provisions", of HUD Handbook 4330.1 , REV-3, Administration of Insured Home Mortgages, for additional details. 1. Special (written) forbearance can be for up to 18 months, and mortgagors with no other property subject to an FHA-insured mortgage are eligible without HUD's advance approval. 2. Refinancing, reamortization or recasting the mortgage may be appropriate, especially where repairs to the property are necessary and secondary financing may be sought to complete the repairs. 3. Mortgagees should also consider waiving any late payment charges if the mortgagor's payment is late because he or she incurred added expenses or loss of income as a result of the flood, or if he or she needs additional time to receive a pending insurance settlement. 4. In addition, mortgagees or their servicers should temporarily suspend reporting delinquencies to credit bureaus if they are aware that the mortgagor's delinquency is attributable to hardships he or she incurred as the result of the flood. 5. If a viable forbearance plan cannot be reached, servicers may accept deeds-in-lieu of foreclosure after the moratorium, if they are offered and the applicable criteria are met. III. DEALING WITH PROPERTY DAMAGE. Mortgagees are expected to follow existing procedures pertaining to damaged properties unless instructed by HUD to do otherwise. No action should be taken (including the initiation or completion of foreclosure proceedings, after expiration of the foreclosure moratorium), if it will jeopardize the full recovery of a _____________________________________________________________________ 3 hazard insurance settlement. Mortgagees or their servicers should take affirmative steps to ensure that hazard insurance claims are filed and settled as expeditiously as possible, and that the affected properties undergo full repair. In damage cases, insurance proceeds are payable jointly to the mortgagee and the mortgagor and are frequently mailed to the mortgagee. The mortgagee should expedite turning over proceeds to the mortgagor, in accordance with existing inspection and verification procedures, and should not retain proceeds to make up an existing arrearage without the written consent of the mortgagor. (See Handbook 4330.1, REV-3, Chapter 9, paragraph 9-10E; also, refer to Instructions for Single Family Application for Insurance Benefits, page 8.) Property damage caused by the flood and its aftermath, whether or not a given mortgage delinquency preceded the flood date, should predispose the mortgagee to consider forbearing on the loan in order to allow the mortgagor additional time to stabilize his or her financial situation, as well as to arrange with the insurance carrier for repair and restoration of the premises. The goal should be a formal relief provision that will cure the delinquency as soon as possible without imposing an undue hardship on the mortgagor. Headquarters has instructed HUD Field Offices with jurisdiction over the areas affected by the flood to have available a complete list of FHA-approved fee appraisers who can be called upon to perform inspections as the repair work progresses on damaged properties. Mortgage servicers should contact the Loan Management Branch Chief to obtain a copy of this list. If the premises has been totally destroyed, the mortgagee should compare the unpaid principal balance with the anticipated insurance proceeds and any other circumstances affecting the case, for example, local laws barring reconstruction of the destroyed property. If, after referring to HUD Handbook instructions, questions regarding the most appropriate course of action remain, they should be directed to the Property Disposition Branch Chief in the HUD Field Office with jurisdiction over the property. _____________________________________________________________________ 4 IV. PROCESSING ASSIGNMENT APPLICATIONS. Mortgagees are encouraged to send the HUD Exhibit Letters (pertaining to the assignment program) via Certified Mail-Return Receipt Requested, as well as by first class mail, to mortgagors in the identified disaster areas. Also, mortgagors affected by the flood should generally be granted "good cause" deadline extensions by mortgagees for responding to these letters. V. SECTION 203(h). The Section 203(h), "Single Family Home Mortgage Insurance for Disaster Victims," is also available to assist displaced persons who meet the eligibility requirements caused by a disaster. (See attached.) The Department appreciates your cooperation and your attention to the directives and the recommendations contained in this Mortgagee Letter. Servicers are reminded to document fully their mortgage files regarding all servicing actions relating to the flood and its aftermath. Reasonable doubts as to the flood effect on a property's condition or a mortgagor's income or employment status should either be resolved in the mortgagor's favor, or else cause any proposed action against the mortgagor to be suspended until a definite determination can be made. Questions pertaining to this Mortgagee Letter should be directed to the HUD Field Office which has jurisdiction over the properties affected by the flood. Sincerely yours, Nicolas P. Retsinas Assistant Secretary for Housing - Federal Housing Commissioner Attachment _____________________________________________________________________ U.S. Department of Housing and Urban Development Washington, D.C. 20410-8000 Section 203(h) Single Family Home Mortgage Insurance to Disaster Victims Purpose Provides mortgage insurance for a person to purchase a principal residence after being displaced by a disaster. The residence to be purchased need not be located in the same area as the disaster. Eligibility Requirements o Borrower must meet standard FHA credit qualifications. o Borrower's previous residence must have been destroyed or damaged to such an extent that reconstruction or replacement is necessary. The borrower may be the owner of the property or a renter of the property destroyed. o Borrower is eligible for 100% financing. No downpayment is required. The upfront mortgage insurance premium can be financed into the mortgage and the borrower will pay an annual premium. o Borrower must purchase a one family unit; two, three, and four unit properties may not be purchased under this program. o Adjustable rate mortgages cannot be used with this program. o Mortgage limits are the same as for Section 203(b) o The borrower's application for mortgage insurance must be submitted within one year of the President's declaration.