CHAPTER 9. HUD SERVICING
9-1 PURPOSE. This chapter explains the procedures for the local HUD
Office to follow in servicing reverse mortgages that have been
assigned to HUD. The procedures for making required payments and
fulfilling other lender obligations under the mortgage are included.
When the mortgage is assigned to HUD, the Department assumes all of
the responsibilities of the lender. Refer to HUD Handbook 4335.2 for
standard servicing procedures. This chapter supersedes that handbook
only as noted below.
9-2 BASIC SERVICING ISSUES. The servicing of a reverse mortgage differs
from a standard forward mortgage in the following ways:
A.The local HUD Office must be able to make payments to the
borrower.
1)A mortgage assigned to HUD will require that HUD make
payments to the borrower or be able to disburse funds from a
line of credit.
2)The local HUD Office must be able to recalculate the
borrower's payments (see Chapter 5) and follow the
procedures to have the borrower receive payments from HUD.
B.HUD may service a mortgage where payments are not made or
received by the borrower at all. Payments will not be made on a
mortgage that has reached its principal limit. However, interest
and a monthly service charge in lieu of MIP will be added to the
outstanding balance.
C.The local HUD Office must not only monitor the payment of
property taxes and the maintenance of hazard insurance, but must
also verify that the property is the borrower's principal
residence annually.
9-3USE OF AUTOMATED SYSTEMS. The local HUD Office will not use the
Single Family Mortgage Notes System (SFMNS) to service reverse
mortgages. The Office of Insured Single Family Housing will provide
instructions for the servicing of these mortgages and the use of
automated systems.
9-4 MORTGAGES REQUIRING MONTHLY PAYMENTS.
A.When the local HUD Office receives a notice of the lender's
intent to assign the mortgage to HUD, the following steps must be
taken:
1)A memorandum must be sent to the Office of Mortgage
Insurance Accounting and Servicing (MIAS) in Headquarters,
designating that the case is a Home Equity Conversion
Mortgage. The memorandum must contain the following
information:
a.FHA case number;
b.The borrower's name and address;
c.The name of the financial institution and account
number for the borrower's checking or savings account,
and other information necessary to continue making
payments to borrowers who have chosen Electronic Funds
Transfer (EFT);
d.A copy of the borrower's current payment plan,
indicating required payments, and a listing of the
outstanding balance, principal limit and net principal
limit, for both the entire mortgage and the line of
credit, if applicable;
e.The amount of the monthly withholding for taxes, if
any;
2)A letter must be sent to the borrower containing the
following information:
a.The name and phone number of a Loan Specialist at the
local HUD Office that the borrower can contact,
b.The expected date that HUD will begin making monthly
payments to the borrower, the amount of the next
payment due and that any late charges due to the
borrower will be paid;
c.The amount that HUD will be deducting from the
borrower's monthly payment for the purpose of paying
taxes. The borrower should also be informed that HUD
will not withhold for hazard insurance, and that the
borrower will be required to maintain hazard insurance
and provide HUD with proof that the premiums have been
paid;
d.The borrower's outstanding balance, principal
limit and net principal limit for both the entire mortgage and a
line of credit, if applicable;
e.A request that the borrower notify the local
HUD Office if any extended absences from the property are planned;
f.A request that the borrower provide the local HUD
Office with the name of a relative or friend to be
contacted in case the borrower cannot be reached.
B.If the mortgage is assigned to HUD by demand, the local HUD
Office must send a memorandum to MIAS, requesting that the
payments due at the time and since the lender defaulted be made,
including late charges due the borrower. MIAS will already have
the information in Part A. of this Paragraph from the original
request. The local HUD Office must send the notice to the
borrower required above.
9-5 MORTGAGES NOT REQUIRING MONTHLY PAYMENTS.
A.A memorandum must be sent to MIAS, in Headquarters, designating
that the case is a Home Equity Conversion Mortgage. The
memorandum must contain the following information:
1) FHA case number;
2) The borrower's name and address;
3)The name of the financial institution and account number for
the borrower's checking or savings account, and other
information necessary to continue making payments to
borrowers who have chosen Electronic Funds Transfer (EFT);
4)A copy of the borrower's current payment plan, and a listing
of the borrower's outstanding balance, principal limit and
net principal limit;
5) The amount of any required payments for taxes.
B.A letter must be sent to the borrower containing the following
information:
1)The name and phone number of a Loan Specialist at the local
HUD Office that the borrower can contact,
2)The amount that HUD will be adding to the borrower's
outstanding balance for the purpose of paying taxes. The
borrower should also be informed that HUD will not withhold
for hazard insurance, and that the borrower will be required
to maintain hazard insurance and provide HUD with proof that
the premiums have been paid;
3)The borrower's outstanding balance, principal limit and net
principal limit;
4)A request that the borrower notify the local HUD Office if
any extended absences from the property are planned;
5)A request that the borrower provide the local HUD Office
with the name of a relative or friend to be contacted in
case the borrower can not be reached.
9-6ESTABLISHING A SERVICING ACCOUNT. The local HUD Office must perform
the following with all assigned mortgages:
A.A tax record must be established to assure that either proof of
tax payment is received from the borrower 30 days before the
penalty date or the local HUD Office pays the tax when it is due.
1)The contents of the tax record are listed in Paragraph 3-6D.
of HUD Handbook 4335.2.
2)The local HUD Office must send a separate tax transmittal to
the Regional Accounting Division (RAD) identified as a HECM
account. The transmittal must be received by RAD at least
15 days before the penalty date.
3)The procedures for withholding for taxes in HUD Handbook
4330.1 should be followed.
4)If tax penalties or interest has been charged due to the
borrower's failure to make required payments, these charges
must be added to the outstanding balance.
B.The local HUD Office must ensure that a hazard insurance policy
up to the value of insurable property improvements at closing has
been obtained by the borrower and that the policy remains in
effect throughout the life of the loan.
C.A certification schedule must be established to ensure that the
local HUD Office verifies annually that the property is the
principal residence of at least one borrower.
D.A schedule for adjusting the interest rates on adjustable rate
reverse mortgages must be established. The local HUD Office must
notify MIAS at least 30 days before the change date (monthly or
annually). The local HUD Office must recalculate the interest
rate according to the provisions of the mortgage and the
procedures established in Mortgagee Letter 89-24, and provide the
disclosure required at least 25 days before the first adjustment
in the outstanding balance after the change date.
E.The local HUD Office must use the procedures outlined in Chapter
5 to recalculate the borrower's payments.
BORROWER DEFAULTS.
A.If the borrower fails to make payments for taxes and hazard
insurance, the local HUD Office must arrange to make the
payments, including late charges and penalties, if any, and add
the amount of any payments to the outstanding balance. If the
local HUD Office makes payments for the borrower and the borrower
does not have a line of credit, the local HUD Office must change
the borrower's payment plan to accommodate the payments. The
local HUD Office may begin withholding monthly amounts from the
borrower's payments for the purpose of paying taxes and
insurance, if the borrower regularly fails to make these
payments.
B.The borrower must maintain the condition of the property. If
aware of a deterioration in the property's condition:
1)The local HUD Office may notify the borrower of the
deficient condition of the property, indicating the required
repairs for bringing the property up to an acceptable
condition.
2)If the borrower fails to comply with this request within 60
days by beginning to correct the condition of the property,
the local HUD Office may declare the mortgage due and
payable.
Situations where the conditions under the mortgage are not being met
should be referred to a HUD-approved housing counseling agency in the
area, if a solution to the problem can not be found. The local HUD
Office is advised to refer the borrower to a counseling agency before
declaring a technical default under the mortgage.
If the borrower fails to comply with these requirements after warning
by the local HUD Office, and the borrower's principal limit is
insufficient to make these payments or cover the cost of repairs, the
local HUD Office may declare the mortgage due and payable.
9-8 DAMAGED PROPERTY.
A.If the property is damaged and insurance proceeds are available
to restore the property, the instructions in Paragraph 3-7C., HUD
Handbook 4335.2, must be followed.
B.If the property is damaged and is either uninsured or
under-insured, the local HUD Office must obtain an estimate of
the cost of repairs.
1)If the borrower's principal limit is sufficient to cover the
cost of repairs, the borrower may:
a.Restore the property and receive an unscheduled
payment to pay for repairs. This procedure would reduce any
monthly payments that he or she may have been
receiving, or
b.Sell the property for the as-is appraised value of
the property.
2)If the property is uninhabitable due to damage and the
borrower's principal limit is insufficient to cover the cost
of repairs, the local HUD Office must issue a Repayment
Notice to the borrower to foreclose and proceed with
foreclosure if the borrower cannot sell the property.
9-9PAYOFFS. If the borrower or the borrower's estate requests to pay off
the mortgage, the local HUD Office must:
A.Request a payoff statement from MIAS, which will need the
following information to calculate the payoff amount:
1)The cost of the appraisal (to be added to the outstanding
balance);
2) The date that monthly payments, if any, will cease;
3)The amount of any tax payments that are due but unpaid.
These amounts may have been withheld from monthly payments,
but have not been added to the outstanding balance.
4) The expected date of payoff.
B.The local HUD Office should follow the instructions in HUD
Handbook 4330.1 for calculating the correct payoff, amount,
including any shared appreciation.
C.If the borrower requests to pay off the mortgage through the sale
of the property, he or she may request an appraisal, and pay off
the lesser of the appraised value and the outstanding balance on
the mortgage. Refer to HUD Handbook 4330.1 for procedures to
follow.
9-10DUE AND PAYABLE MORTGAGES. The local HUD Office should follow
the procedures in HUD Handbook 4330.1 for evaluating the
conditions that would cause the mortgage to be due and payable
and lead to foreclosure, and for the payoff requirements for due
and payable mortgages.
| HECM Guidelines |
| Home Equity Conversion Mortgages |
The HECM FHA insured reverse mortgage can be used
by senior homeowners age 62 and older to convert the
equity in their home into monthly streams of income
and/or a line of credit to be repaid when they no
longer occupy the home. The loan, commonly known
as HECM, is funded by a lending institution such as a
mortgage lender, bank, credit union or savings and
loan association. To assist the homeowner in making
an informed decision of whether this program meets
their needs, they are required to receive consumer
education and counseling by a HUD-approved HECM
counselor.
by senior homeowners age 62 and older to convert the
equity in their home into monthly streams of income
and/or a line of credit to be repaid when they no
longer occupy the home. The loan, commonly known
as HECM, is funded by a lending institution such as a
mortgage lender, bank, credit union or savings and
loan association. To assist the homeowner in making
an informed decision of whether this program meets
their needs, they are required to receive consumer
education and counseling by a HUD-approved HECM
counselor.
