III.A.2.i. Loss Mitigation Review Process (03/14/16)

© HUD Single Family Housing Policy Handbook 4000.1

Included in this section are:

i. Servicemember Status

ii. Complete Loss Mitigation Requests

iii. Evaluation of the Borrower’s Financial Condition

iv. Continuous Income for Loss Mitigation Evaluations

v. 90-Day Review Requirement

vi. Monthly Review

vii. Loss Mitigation Reporting

viii. Notice to Borrower after Loss Mitigation Review

ix. Loss Mitigation Agreements

x. Loss Mitigation during Bankruptcy Proceedings

xi. Escalated Cases

i. Servicemember Status

The Mortgagee must offer eligible servicemember Borrowers mortgage protections under the SCRA and Servicing FHA-Insured Mortgages for Servicemember-Borrowers.

ii. Complete Loss Mitigation Requests

(A) Definition A Complete Loss Mitigation Request is a request for loss mitigation assistance that contains all information the Mortgagee requires from the Borrower in order to evaluate Loss Mitigation Options.

(B) Standard The Mortgagee must timely evaluate and respond to Complete Loss Mitigation Requests. For loss mitigation requests received after the initiation of foreclosure, the Mortgagee must evaluate and respond to Complete Loss Mitigation Requests according to the timeframe requirements in Loss Mitigation during the Foreclosure Process. When a Mortgagee receives incomplete loss mitigation requests, the Mortgagee must notify the Borrower in writing:

• which documents are needed for review; and
• when the documents should be sent back to the Mortgagee.

This notice must include the required statement that the Borrower should consider contacting Mortgagees of any other Mortgages secured by the same Property to discuss available Loss Mitigation Options.

(C) Required Documentation The Mortgagee must note in its servicing file:

• the dates it received a Complete Loss Mitigation Request;
• the dates it sent any notices to the Borrower requesting additional documentation, if applicable; and
• what documentation was requested, if applicable.

iii. Evaluation of the Borrower’s Financial Condition

(A) Borrower’s Financial Information [Highlighted text below must be implemented no later than December 1, 2016]

(1) Standard The Mortgagee must obtain detailed financial information from the Borrower in order to evaluate them for Loss Mitigation Options. The Mortgagee may accept financial information during a telephone interview subject to confirmation with appropriate supporting documentation.

(a) Living Expenses The Mortgagee must confirm all Borrowers’ monthly living expenses with appropriate supporting documentation when the existing total Mortgage Payment (i.e., PITI) is equal to or less than 31 percent of the Borrowers’ current monthly gross income. The Mortgagee must ensure that all expenses on the Borrower’s credit report are included in the Mortgagee’s calculation of living expenses, along with any other expenses, which can be supported by bills and receipts or by allowances for the five necessary expenses (food, housekeeping supplies, apparel and services, personal care products and services, and miscellaneous) established as national standards for food, clothing, and other items as part of the IRS Collection Financial Standards. Refer to IRS National Standards: Food, Clothing and Other Items for more information.

(b) Borrower Income For purposes of a loss mitigation analysis, Borrower income must include:

• the income of each Borrower who is occupying or not occupying the Property; and
• the income of each owner-occupant non-Borrower who will be added as a Borrower and assume personal liability for repayment of the Mortgage in accordance with the agreed upon loss mitigation terms.

(c) Hardship Hardship for purposes of FHA’s Loss Mitigation Options is demonstrated by providing evidence of an increase in living expenses or a loss of income. FHA-approved Mortgagees have the delegated authority to request the documentation they deem necessary from Borrowers to substantiate a hardship.

(2) Required Documentation The Mortgagee must retain documentation of financial information in the Claim Review File. Supporting documentation for hardship can be in the form of bank statements, medical bills, home repair bills, and other similar documentation.

(B) Analysis of Borrower’s Financial Information for Surplus Income

(1) Definition Surplus Income Percentage is a percentage calculated in the Mortgagee’s financial analysis to determine which Loss Mitigation Options are appropriate based on the Borrower’s income.

(2) Standard The Mortgagee must analyze the Borrower’s current and future ability to meet the monthly Mortgage Payment by estimating the Borrower’s assets and surplus income as follows:

• Step 1: Estimate the Borrower’s normal monthly living expenses (e.g., food, utilities, etc.), debt service on the Mortgage, and other obligations, including Homeowners’ Association (HOA)/Condominium Fees, based on current information, and projected for:
  • a period of three months; or
  • if review is for Special Forbearance (SFB) - Unemployment Option, for the length of the SFB - Unemployment Agreement.
• Step 2: Estimate the Borrower’s anticipated monthly net income for the same period listed above, making necessary adjustments for income fluctuations.
• Step 3: Subtract expenses from income to determine the amount of surplus income available each month.
• Step 4: Divide surplus income by monthly net income to determine the Surplus Income Percentage.

The Mortgagee must ensure that the selected workout strategy reflects the Borrower’s ability to pay. The Mortgagee must require Borrowers who want to retain the Property and who have sufficient surplus income and/or other assets to reinstate the Mortgage through a repayment strategy.

iv. Continuous Income for Loss Mitigation Evaluations

(A) Definition Continuous Income is income received by the Borrower that is reasonably likely to continue from the date of the Mortgagee’s loss mitigation evaluation through at least the next 12 months.

(B) Standard Continuous Income includes the following:

• Employment Income (e.g., wages, salary, or self-employment earnings);
• Social Security;
• disability;
• veterans’ benefits;
• Child Support;
• survivor benefits;
• Pensions; and
• other documented income that is reasonably likely to continue from the date of the Mortgagee’s loss mitigation evaluation through at least the next 12 months.

In determining the amount of Continuous Income available to a Borrower, the Mortgagee must review the Borrower’s documented sources of income and expenses and calculate the Borrower’s surplus/deficit income or gross income necessary for applicable Loss Mitigation Options.

v. 90-Day Review Requirement

(A) Definition The 90-Day Review is a Mortgagee’s required evaluation, occurring before four monthly installments are due and unpaid, of a Defaulted Mortgage for appropriate Loss Mitigation Options.

(B) Standard To comply with this loss mitigation review requirement, the Mortgagee must:

• contact the Borrower to gather information about their circumstances, intentions, and financial condition; and
• attempt to complete its evaluation of the Mortgage for all appropriate Loss Mitigation Options.

After its review of a Borrower’s loss mitigation request, the Mortgagee must send a written Notice to Borrower after Loss Mitigation Review.

(C) Required Documentation The Mortgagee must document in the Claim Review File its aggressive efforts to reach each Borrower in Default well in advance of the 90-Day Review deadline.

vi. Monthly Review

(A) Standard The Mortgagee must evaluate on a monthly basis all Loss Mitigation Options available for Borrowers in Default as long as the Mortgage remains Delinquent.

(B) Required Documentation The Mortgagee’s servicing records must include monthly notations, documenting the Mortgagee’s analysis and determination with respect to the appropriateness of each Loss Mitigation Option. If the Borrower indicates that there has been no change in their circumstances, the Mortgagee may note this in its records. As long as the Borrower is performing on an approved Loss Mitigation Option, including Trial Payment Plans, the Mortgagee has met the monthly review requirement and must note this in the Claim Review File.

vii. Loss Mitigation Reporting

The Mortgagee must report in SFDMS the Delinquency Workouts Status Codes that accurately reflect the stage of loss mitigation review.

If the Mortgagee has determined that the Borrower is ineligible for Loss Mitigation and the Mortgagee will be initiating foreclosure, the Mortgagee must report in SFDMS the appropriate Ineligible for Loss Mitigation Code.

viii. Notice to Borrower after Loss Mitigation Review [Highlighted text below must be implemented no later than December 1, 2016]

The Mortgagee must send a written notice to the Borrower after an evaluation of the Borrower for Loss Mitigation Option eligibility, which indicates:

• the Mortgagee’s determination as to whether or not the Borrower qualifiesfor a Loss Mitigation Option;
• the actual reason or reasons they have been denied for any HUD Loss Mitigation Option;
• the process for appeals or escalation of cases;
• the process and timeframe for submission of additional information that may impact the Mortgagee’s evaluation;
• the Mortgagee’s points of contact; and
• the possibility of the Borrower’s Mortgage being included in a Single Family Loan Sale or being foreclosed upon if loss mitigation is not viable, unsuccessful, denied, or unable to be considered (due to the Borrower’s failure to fully respond to the Mortgagee’s request for additional information).

ix. Loss Mitigation Agreements

(A) Standard The Mortgagee must ensure that Loss Mitigation Option Agreements are executed by all parties necessary to ensure:

• that HUD’s first lien position is preserved; and
• that the Agreement is enforceable under state and local law.

(B) Mortgagee Signature Where a Mortgagee signature is needed on a Loss Mitigation Option Agreement, the servicing Mortgagee with this delegated authority may provide this signature.

(C) Authorized Third Parties When a Loss Mitigation Option Agreement is to be signed by an Authorized Third Party with authority to act on behalf of the Borrower, the Mortgagee must ensure that the Claim Review File includes a copy of that party’s authorization.

(D) Electronic Signatures The use of electronic signatures is voluntary. HUD will accept an electronic signature conducted in accordance with the Policy on Use of Electronic Signatures on HUD Loss Mitigation documents requiring signatures, unless otherwise prohibited by law.

(E) No Waiver of Rights The Mortgagee must not include any language in any loss mitigation documents that requires Borrowers to waive their rights under state or federal law or under the mortgage contract as a condition for consideration, approval, or implementation of a Loss Mitigation Option.

x. Loss Mitigation during Bankruptcy Proceedings

(A) Standard The Mortgagee must comply with and seek relief, if appropriate, from the automatic stay. The Mortgagee may review Borrowers with active Chapter 7 or Chapter 13 bankruptcy cases for Loss Mitigation Options to the extent that such loss mitigation does not violate federal bankruptcy laws or orders of the bankruptcy court or bankruptcy trustee.

(1) Eligibility for Loss Mitigation The Mortgagee may consider for Loss Mitigation Options those Borrowers who have received a Chapter 7 bankruptcy discharge and did not reaffirm the FHA-insured mortgage debt under applicable law.

(2) Bankruptcy Proceedings for which Borrower has an Attorney The Mortgagee must, upon receipt of notice of a bankruptcy filing:

• send information to the Borrower’s attorney indicating that loss mitigation may be available; and
• provide instructions sufficient to facilitate workout discussions including:
  • requirements for additional financial information documentation;
  • applicable timeframes; and
  • Mortgagee contact information.

(3) Bankruptcy Proceedings for which Borrower does not have an Attorney (Bankruptcy Pro Se)Where the Borrower filed the bankruptcy pro se, the Mortgagee must send to the Borrower information relating to the availability of Loss Mitigation Options, with a copy to the bankruptcy trustee. The Mortgagee must ensure that this communication does not infer that it is in any way an attempt to collect a debt.

(B) Required Documentation The Mortgagee must retain in its Claim Review File documentation supporting its efforts to comply with or seek relief from automatic stays and documentation supporting any delays in meeting required HUD timelines.

(C) Reporting Bankruptcy The Mortgagee must report in SFDMS the Account in Bankruptcy Codes reflecting the status of the bankruptcy proceedings.

xi. Escalated Cases

(A) Definition Escalated Cases are written Borrower inquiries and complaints requiring additional Mortgagee review because they include allegations of:

• improper analysis of Borrower information or denials of Loss Mitigation Options;
• foreclosures initiated or continued in violation of HUD’s policy; or
• other violation of HUD Collections and Loss Mitigation policies.

(B) Standard The Mortgagee must escalate cases to its designated escalation team at the written request of:

• HUD staff; or
• the Borrower or Borrower’s Authorized Third Party representative.

(C) Escalation Processes The Mortgagee must escalate and respond to cases in accordance with their written internal policies. The Mortgagee must ensure that, at a minimum, the policies include the following:

• designate which staff members will be responsible for resolving escalated cases. These staff members must:
  • not be the same staff members responsible for the first evaluation of the loss mitigation application; and
  • have access to the Borrowers’ servicing files;
• provide for timely responses to escalated cases as follows:
  • within seven Days of categorizing a Borrower’s inquiry or complaint as an escalated case, the Mortgagee should notify the Borrower in writing that their inquiry and/or complaint has been escalated and that a resolution to their case will be provided no later than 30 Days from the date of escalation; and
  • if the Mortgagee is unable to resolve an escalated case within 30 Days, the Mortgagee must send the Borrower written updates on the status of their case every 15 Days until the case is resolved;
• provide Borrowers with the direct contact information of the department and/or staff member responsible for resolving its escalated cases;
• include methodologies for assessing a Servicer’s compliance with its escalation policies. These methodologies must be included in a Mortgagee’s QC Plan; and
• detail the Mortgagee’s process for resolving escalated cases and managing foreclosure activity when a foreclosure sale has been scheduled.