www.hudclips.org U. S. Department of Housing and Urban Development Washington, D.C. 20410-8000 April 14, 1994 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER MORTGAGEE LETTER 94-19 TO: ALL APPROVED MORTGAGEES ATTENTION: SINGLE FAMILY SERVICING MANAGERS SUBJECT: Single Family Default Monitoring System: Introduction of Monthly Error Reports and Policy Clarifications The purpose of this mortgagee letter is to introduce the Single Family Default Monitoring System (SFDMS) monthly error report and to provide additional guidance concerning HUD's recent initiatives regarding the SFDMS. In conjunction with this mortgagee letter, mortgagees should reference the following issuances: (1) Mortgagee Letter 92-37, Single Family Claims for Insurance Benefits: New Initiatives, System Enhancements and Policy Clarifications, dated October 13, 1992; and, (2) Mortgagee Letter 93-24, Single Family Default Monitoring System: Introduction of Revised Form HUD-92068A: and recent Policy Changes, dated August 1, 1993. (I) Introduction of the Monthly Error Report: Because of the importance of the data reported to SFDMS, many mortgagees have requested that HUD provide some type of feedback. In response to this request, an error report has been developed and will be provided to all mortgagees. The error report is for the mortgagee's benefit and does not require any additional data to be submitted to HUD. It is provided as an informational tool to be used by mortgagees in their prudent servicing of FHA-insured single family mortgages. (A) When will the Monthly Error Report be available? The first monthly error report will be available for the reporting period ending April 30, 1994. (All HUD-92068A data, hard copy or tape, for the April 1994 cycle is due to HUD no later than the fifth working day of _____________________________________________________________________ 2 May 1994.) The monthly error reports are generated when HUD completes the update processing of all HUD-92068A forms submitted by mortgagees each month. Mortgagees should allow approximately 25 to 28 working days for receipt. (B) Where will the error report be sent? HUD will send the monthly error report to the address that the mortgagee provides in blocks 1, 2a, 2b, 2c and 2d of Form HUD-92068A. If these fields are incomplete or are left blank, the error report will be sent to the mortgagee at the home office mailing address last reported to the Office of Lender Activities (only if a valid ten digit HUD ID was provided). At this time, there is no provision to provide duplicate copies of the error report or to send the error report to a different address. (C) If there are no errors, will the mortgagee receive any notification? A report will be prepared for all properly completed Forms HUD-92068A received. If there are no errors, a line item will still appear on the report to confirm that Form HUD-92068A was received; and to show the mortgage status of the case after the transaction was processed. However, if the mortgagee provides an incorrect ten-digit HUD ID in block 7, the error report will not be sent, because the servicing mortgagee could not be properly identified. (D) How will the reports be structured? The report will provide the mortgagee's loan number, FHA Case number, mortgagor's name, mortgagor's Social Security number and the respective code designating the type of error. Please refer to Attachment 1 for a sample report. (E) What will be identified on the error reports? Identified in the header region of Attachment 1 is a listing of the error codes. Following is a brief description of each type of error and a recommendation for correction. _____________________________________________________________________ 3 1. Fatal or "Hard" errors. Where one of the following errors is found, no further search is made for additional errors. All processing on that case is stopped. R1 Servicing Mortgagee: This error identifies that an incorrect or missing ten-digit HUD identification number was reported for the servicing mortgagee (in block 7). The mortgagee ID is a key index for the SFDMS database and must be valid. Without a correct HUD identification number for the servicing mortgagee, HUD cannot reference where to send the error report and as a result, an error report will not be sent. RECOMMENDATION: Prior to submission of each monthly report, ensure the correct ten-digit ID has been provided. R2 FHA Case Number: In most situations the FHA Case number is either missing or incorrect. Note: HUD's verification process will check only for FHA Case number where the mortgage insurance is still in force. In addition to identifying cases where the FHA Case number is either missing or incomplete; this error code will also identify those cases where a claim for insurance benefits or mortgage termination (form HUD-27050A), was submitted by the mortgagee and processed by HUD. RECOMMENDATION: Prior to submission of each monthly report, ensure that the correct FHA Case numbers have been provided for each account R3 Mortgage Status Code: Mortgagees must properly identify the mortgage status code for each case and must continue to report until the delinquency is cured or the mortgage insurance has been _____________________________________________________________________ 4 terminated. Failure to provide the mortgage code will stop the update processing of the case. The R3 error code will identify if the Mortgage Status code is either missing or invalid. The SFDMS System will verify if a valid Alpha character was identified in item 16a. No further validation will be made for other errors for the specific case. RECOMMENDATION: Prior to submission of each monthly report, ensure that a valid status code has been provided for each account. 2. Non-Fatal or "Soft" Errors. If a fatal error was not found, the system will review each case and note all appropriate errors. The following codes identify data that is incomplete or invalid. The SFDMS expects a valid entry in each field and will identify any of the following fields left blank as "soft" errors. You may disregard the soft errors for co-mortgagor name (block 12a) and co-mortgagor SSN (block 12c) if there is no co-mortgagor for the loan. You may also disregard the soft error messages for bankruptcy status (block 18a) and bankruptcy status date (block 18b) if the case is not in bankruptcy. For all other errors noted, mortgagees must provide the missing or incorrect information on the next monthly submission. ERROR FIELD CODE NAME A1 Street Name A2 City Name A3 State Name A4 Zip Code B1 Submitting Agency B2 Mortgage Loan No. B3 Unpaid Balance B4 Mortgagor Name B5 Mortgagor SSN B6 Co-mortgagor Name B7 Co-mortgagor SSN _____________________________________________________________________ 5 C1 Section of the Act (ADP Code) C2 Occupancy Status C3 Bankruptcy Status C4 Cause of Default D1 Due Date of First Payment D2 Oldest Unpaid Installment D3 Mortgage Status Date D4 Bankruptcy Status Date (II) SFDMS/Claims Interface - Additional Guidance: HUD implemented the interface between the Single Family Default Monitoring System (SFDMS) and the Single Family Claims System to accomplish several goals. It was designed to assist mortgagees in the preparation of their claims, to ensure better mortgagee compliance with the required notification of foreclosure initiation (24 CFR 203.356), and to improve data quality. Since the issuance of Mortgagee Letter 92-37, dated October 13, 1992, we have received several requests for policy clarification. Attachment 2 provides clarification of the most frequently asked questions in a question and answer format. Should you have further questions, please contact the Single Family Loan Management staff at the local HUD Office having jurisdiction over the mortgaged property. Sincerely yours, Nicolas P. Retsinas Assistant Secretary for Housing - Federal Housing Commissioner Attachments _____________________________________________________________________ ATTACHMENT 1 ___________________________________________________________________________ CONSOLIDATED SINGLE FAMILY DEFAULT MONITORING SYSTEM 92068-A TRANSACTION ERROR REPORT FOR DATABASE UPDATE CYCLE MM/YY ******************************************************************** * * * * * * * * * * * * * * * * * * * GRAPHICS MATERIAL IN ORIGINAL DOCUMENT OMITTED * * * * * * * * * * * * * * * * * * * ******************************************************************** ___________________________________________________________________________ _____________________________________________________________________ ATTACHMENT 1 ___________________________________________________________________________ CONSOLIDATED SINGLE FAMILY DEFAULT MONITORING SYSTEM 92068-A TRANSACTION ERROR REPORT FOR DATABASE UPDATE CYCLE MM/YY ******************************************************************** * * * * * * * * * * * * * * * * * * * GRAPHICS MATERIAL IN ORIGINAL DOCUMENT OMITTED * * * * * * * * * * * * * * * * * * * ******************************************************************** ___________________________________________________________________________ _____________________________________________________________________ ATTACHMENT 2 SFDMS POLICY CLARIFICATIONS Following are the most frequently asked questions and HUD's response. 1. Question: I did not get a confirmation letter. Will you check your system and tell me if my account posted properly and will you send me a duplicate copy? Answer: The Single Family Default Monitoring System is not an "on-line" system and, therefore, HUD staff are unable to research and determine if a particular case is on file. There is also presently no mechanism for producing duplicate letters. (On-line access is being developed and is expected to be completed within 12 to 18 months to provide local HUD Offices inquiry capability.) 2. Question: Will you send my confirmation letters to a different address? Answer: No. Confirmation letters are mailed to the same mailing address identified by each mortgagee to the Office of Lender Activities for receipt of all claim related correspondence (i.e., Advice of Payment). If the address is presently incorrect, contact the Office of Lender Activities, Lender Approval and Recertification Division at (202) 708-1824, for instructions for changing this address. 3. Question: During an on-site claims review, what will the claims reviewer check to determine my compliance in reporting to the SFDMS, specifically Status B, and under what circumstances will the claims reviewer find I am in non-compliance? Answer: The claim reviewers will review all documentation (made available to the reviewer at the time of the on-site review), including confirmation letters, hard copies of the input documents and any other related documentation noted in the claim review file. Any and all supporting information must be maintained and made available to HUD upon request. The reviewer will find a mortgagee in non-compliance where the mortgagee cannot provide documentation to indicate that the case was properly reported to the SFDMS. Where HUD's claim reviewer finds non-compliance in reporting initiation of foreclosure to the SFDMS, the finding will be monetary (not just a compliance issue). Interest will be deemed to be overpaid from a date which is 30 days from the date in Block 11, (or the date that should have been entered in Block 11) and the error may be extrapolated over the universe of paid claims subject to review. _____________________________________________________________________ ATTACHMENT 2 Page 2 4. Question: We cannot find any record for several cases being reported to the SFDMS. The claim has been filed and paid on one case, but not on the others. Can I report them late, and if not will I be penalized if I'm found in non-compliance? Answer: From the date the first legal action is taken to initiate foreclosure, mortgagees must report Status B to the SFDMS in either the monthly cycle that foreclosure was initiated or in the following monthly reporting cycle. There is no provision for "late reporting". Regarding the cases where the claim has been filed and paid, the mortgagee should file a supplemental claim to repay HUD the overpaid interest. Interest shall be curtailed to 30 days from the date in Block 11 (date of foreclosure). With reference to the cases where the claims have not yet been filed, the mortgagee must enter into Block 31 a date which is 30 days from the date in Block 11. This will allow the claim system to properly curtail the claim (see also Mortgagee Letter 92-37). Where HUD's claim reviewer finds non-compliance in reporting initiation of foreclosure to the SFDMS, the finding will be monetary (not just a compliance issue). Interest will be deemed to be overpaid from a date which is 30 days from the date in Block 11, and the error may be extrapolated over the universe of paid claims subject to review. 5. Question: What can I do in Texas, or other states, where foreclosure may be completed in a very short period of time? Sometimes the property is conveyed before the end of the month, my claim has been filed and I couldn't report the case to the SFDMS as Status B. Answer: The claim reviewers shall review the facts of each case and determine if there is a reasonable basis why the case was not reported to the SFDMS prior to the submission of the claim. As a general rule, if the claim review file shows that the time between the date the first legal action was taken to the date the property was conveyed to HUD is less than the time allowed to report the initiation of foreclosure, there will be no curtailment for that case. Mortgagees are reminded that they must report the initiation of foreclosure where possible. _____________________________________________________________________ ATTACHMENT 2 Page 3 6. Question: My loan servicers were afraid of not meeting the Status B reporting requirements in Texas and intentionally reported cases to the SFDMS a month early. What will happen in these cases? Texas is not the only state where foreclosures may be completed in a relatively short period of time. Answer: Mortgagees are required to report accurate information. Therefore, effective with the date of this mortgagee letter, mortgagees shall report to the SFDMS within the proper two cycle window. For cases that mortgagees reported early, (prior to the effective date of this mortgagee letter, no curtailment will be assessed if the documentation supports that the early reporting was due to a good faith effort to properly report Status B to the SFDMS. Non-compliance after the date of this mortgagee letter will result in monetary findings. 7. Question: What should I do if foreclosure is initiated early in the month and the loan is to be transferred to another lender before the end of the month? Answer: Report the case as Status B. It then becomes extremely important that the Mortgage Record Change, (Form HUD-92080) be promptly submitted so that the confirmation letter be sent to the "new" servicer. Because this is a very tight time frame, there may be occasions where the confirmation letter is sent to the previous servicer. In these cases, any confirmation letter received for a mortgage transferred to another servicer, should be promptly forwarded to the new servicer. The new servicer will be responsible for any failure to report the initiation of foreclosure and must maintain a copy of the confirmation letter in the claim review file. 8. Question: My company just purchased a block of mortgages which we will service. In our due diligence review we found that out of fifty mortgages where foreclosure was in process, only forty had a copy of the confirmation letters in the files. For those remaining files, if we cannot demonstrate to the claim reviewer that the notice of initiation of foreclosure was properly reported (Status B), who will be held responsible for any failure to report? _____________________________________________________________________ ATTACHMENT 2 Page 4 Answer: The company that files the claim for insurance benefits will be held responsible for failing to meet any time or notice requirement. 9. Question: Will you change your records to correct the identities of the servicer, holder and mortgagor? Answer: Both the confirmation letter and Mortgagee Letter 92-37, provide instructions on what to do if a change is required in the name of the borrower, the mortgage servicer or the mortgage holder. Mortgagees are instructed to immediately file Form HUD-92080, Mortgage Record Change, to correct these items. There is no other mechanism for having these items changed in HUD's database. 10. Question: Who can I call and what can I do if the interest rate is wrong? Answer: Both the confirmation letter and Mortgagee Letter 92-37, advise mortgagees to review their origination documents carefully if they believe that HUD's system reflects an incorrect interest rate. No interest rate adjustments will be required for Adjustable Rate Mortgage (ARMs). If after careful research you believe that HUD's data is incorrect, you must contact the Single Family Mortgage Credit Branch in the local HUD Office having jurisdiction over the mortgaged property for guidance. A corrected Mortgage Insurance Certificate (MIC) may need to be issued. If so, please follow the outstanding instructions in HUD Handbook 4000.2, Rev-2. 11. Question: Will you explain to me why a case I reported last month was not accepted as status B, and did not generate a confirmation letter? HUD's records must be wrong because the case number is 111-222222-203 and that is exactly how the FHA Case No. was recorded on Form HUD-92068A. Answer: The instructions for completing Form HUD-92068A state to enter the FHA Case No. without hyphens. Most probably, the case in question was keyed into the SFDMS incorrectly because hyphens were included. 12. Question: I wrote the local HUD Office and told them that my company initiated foreclosure for FHA Case # 222-333333-203. Why wouldn't HUD acknowledge that I reported to HUD the institution of foreclosure for that case? _____________________________________________________________________ ATTACHMENT 2 Page 5 Answer: The only notification of foreclosure initiation that is accepted by HUD as being in compliance with 24 CFR 203.356 is the proper reporting of Status B to the SFDMS. No other type of notification is acceptable. 13. Question: We sold several mortgages to "xxx" company 5 months ago. Why did they call me to say we were still shown as the mortgage holder and servicer? Answer: This situation should tell you that HUD's records have not been updated and that a Mortgage Record Change (Form HUD-92080) may not have been probably submitted. Ensure that Form HUD-92080, Mortgage Record Change, is submitted (or resubmitted) immediately to correct the identity of both the holder and servicer.