www.hudclips.org U. S. Department of Housing and Urban Development Washington, D.C. 20410-8000 May 17,1995 MORTGAGEE LETTER 95-23 TO: ALL APPROVED MORTGAGEES ATTENTION: SINGLE FAMILY SERVICING MANAGERS SUBJECT: Issuance of Handbook 4330.2 Rev-2, Mortgage Assignment Processing The subject Handbook 4330.2 Rev-2, Mortgage Assignment Processing, dated March 1995, was mailed to mortgage lenders and HUD Offices on April 14, 1995. The Handbook provides instructions to mortgage lenders and HUD Offices in implementing and administering an improved Assignment Program application process. The Handbook indicates that the improved application process effective date is June 1, 1995. However, many program participants have requested additional time to prepare. Therefore, the effective date has been changed to July 1, 1995. Over the past twenty months, HUD has worked diligently with all entities having an interest in the Assignment Program, HUD Office staff, the Mortgage Bankers Association, individual lending institutions, housing counseling agencies and consumer advocate groups to improve the application process within the constraints of existing statutes and regulations. This endeavor was necessitated by the decrease in HUD's local Office staff, the need to ensure consistency in the way the program criteria are interpreted and the documentation is evaluated and the desire to accept qualified cases into the program as early as possible while their delinquencies are low. The process has been designed to expand the participation of lending institutions essentially giving lenders full authority to process assignment applications with minimal HUD review. Lenders will initiate communication with borrowers regarding various options to cure defaults and avoid foreclosure including the availability of the Assignment Program. Under the new process, a borrower's request for assignment consideration can follow three different tracks or scenarios. In the first scenario, prompted by two packets of information from the lender, the borrower is given the opportunity to apply HSISS WEAVER 9178 HSISS SHM 9178 HSI COONTS 9266 HS JOHNSON 9282 HSISS INGLETON 9184 HSIS BATES 9178 HSISS:WEAVER/CW/BH TYPED 33/20/95 DRAFTED 3/14/95 DISK HNDBK-ML HSISS HSISS HSIS HSI HSI HS WEAVER INGLETON BATES CAMPBELL COONTS JOHNSON 2 directly to the lender. If the borrower meets the program criteria, the lender must make a recommendation to HUD to accept the assignment of the mortgage. The local HUD Office will accept the case for assignment. The only review by the HUD Office will be to determine if the lender recommended that HUD waive the criteria which requires the property to be the borrower's principal residence and the criteria prohibiting the borrower from owning other property subject to a mortgage insured or held by the Secretary. Although cases recommended for acceptance by lenders will be accepted essentially at face value, the lender's processing will be monitored during on-site reviews. Serious processing errors or evidence of a disregard for the program guidelines will be handled at that time. If the lender cannot recommend that HUD accept assignment (the borrower does not meet one or more of the criteria), which is scenario two, the lender will refer the case to HUD to review the lender's findings and make a final determination. HUD will either agree that the case cannot be accepted or, if it is indicated, request additional documentation from the lender or the borrower in order to determine if the borrower can meet the criteria. Borrowers who do not apply timely to the lender, may, under scenario three, apply directly to HUD. The local HUD Office will process the case in its entirety. A flow chart is included in the Handbook outlining the steps of each of the scenarios. The major improvements to the program include the eligibility of borrowers who have filed bankruptcy to apply for assignment consideration before the bankruptcy court lifts the automatic stay. If the case meets the program criteria, HUD will issue a conditional approval letter informing the borrower and lender that the case will be accepted into HUD's Secretary-held inventory when the bankruptcy automatic stay has been lifted. In order to ensure consistency among HUD Offices and lenders, HUD has expanded the written guidance with respect to how documentation should be applied to the program criteria. The Handbook discusses various examples of reasons for default which have caused some confusion in the past, explains how each reason should be considered and suggests types of documentation which should be requested from the borrower to support the reason for default. With respect to determining whether a borrower will be able to resume making full mortgage payments in the future, the Handbook clarifies how a borrower's future financial capability should be evaluated. 3 The improved application process stresses the need to maximize the use of housing counseling agencies. Most agencies have had experience with the Assignment Program and can serve lenders, HUD and borrowers by putting together more complete applications. Case studies have been included in the Handbook. They represent some of the situations which processors may encounter most frequently. However, these case studies are examples. They are to be used as guidance only. They are not intended as a model for every similar case. All program letters, forms and pamphlet HUD PA-426-H have been revised or rewritten to be more user friendly and many timeframes for responses have been changed. All letters have mandatory language and format. Caution must be taken to reproduce them as they appear in the Handbook. Lenders may purchase forms, the HUD PA-426-H pamphlet and the program flyer from the Government Printing Office (GPO) after May 15, 1995. However, no alterations are permitted if lenders choose to reproduce them in-house. Please direct all questions concerning the improved Assignment Program application process to the local HUD Offices. Sincerely yours, Nicolas P. Retsinas Assistant Secretary of Housing- Federal Housing Commissioner Questions concerning the improved Assignment Program application process may be directed to Charlene Weaver at (202) 708-1672. After June 1, 1995, lenders must contact their local Field Office for guidance and information. Lenders may direct their questions concerning the availability of the training course to Shelia Green of the Mortgage Bankers Association at (202) 861-6500. Sincerely yours, Nicolas P. Retsinas Assistant Secretary for Housing- Federal Housing Commissioner