III.A.2.h. Early Default Intervention (03/14/16)

© HUD Single Family Housing Policy Handbook 4000.1

The Mortgagee must determine the Borrower’s ability to make monthly Mortgage Payments and take loss mitigation action or commence foreclosure, if loss mitigation is not feasible, within six months of the date of Default, or within such additional time approved by the NSC via EVARS.

The Mortgagee must notify each Borrower, co-signer, and any other party requiring notice by state law that the Mortgage is in Default.

Included in this section are:

i. Delinquent Mortgage Identification

ii. SFDMS Default Reporting

iii. Collection Communication Timeline

iv. Specialized Collection Techniques for Early Payment Defaults and Re-Defaults

v. Telephone Contact Efforts

vi. Collection Letters and Electronic Communications

vii. Reporting the Delinquency to HUD

viii. Assigned Loss Mitigation Personnel

ix. Required Notices to Borrower by 45th Day of Delinquency

x. Required Notices to Borrower by 60th Day of Delinquency

xi. Occupancy Inspection

xii. Face-to-Face Interviews

xiii. Reporting the Reason for the Default to HUD

xiv. Vacant Property Inspections

i. Delinquent Mortgage Identification

The Mortgagee must identify Delinquent Mortgages and their payment status and provide such information to appropriate servicing and collection staff on a daily basis.

ii. SFDMS Default Reporting

(A) Definition Single Family Default Monitoring System (SFDMS) is HUD’s system for tracking Mortgagee data on Delinquent Mortgages until a delinquency is resolved through reinstatement or termination.

(B) Standard The Mortgagee must report in SFDMS the Delinquency/Default Status Codes that accurately reflect the stage of delinquency or Mortgagee action.

(1) Types of Mortgages to Report Each month, the Mortgagee must report Delinquent servicing activities for all Mortgages that are 30, 60, and 90 Days or more Delinquent as of the last Day of the month. The Mortgagee must report the statuses of three classes of Mortgages each month:

• New Delinquencies: The Mortgagee must report Delinquent accounts when one full installment is due and unpaid (30 Days Delinquent - Status Code 42) and must continue reporting the applicable Status Code until the delinquency is resolved.
• Open Delinquencies: The Mortgagee must continue to report a Status Code 42 until a servicing action has been initiated/approved and/or completed which would warrant a Status Code change.
• Delinquencies Resolved During the Cycle Month: The Mortgagee must report the appropriate Status Code to reflect that the delinquency has been addressed.

(2) Timeframe for Reporting For every case for which reporting is required, the Mortgagee must submit delinquency data documenting the status as of the end of the month. The Mortgagee must submit this data by the fifth business day of the following month. Mortgagees may submit additional delinquency data throughout the month.

(C) SFDMS Codes

(1) Delinquency/Default Status Codes The Mortgagee must report the correct Delinquency/Default Status (DDS) Code reflecting the status of the Mortgage. The Mortgagee must include applicable status dates when reporting DDS Codes. SFDMS permits the submission of delinquency data throughout the month.

(2) Delinquency/Default Reason Codes The Mortgagee must ascertain and report the specific reason for the Delinquency/Default using the Delinquency/Default Reason (DDR) Codes.

(D) Error Reports and Correction The Mortgagee may receive Error Reports from two systems:

• EDI, which provides the All Transaction Sets 824 (TS824) Report (see the Electronic Data Interchange Implementation Guide for additional information); or

The Mortgagee is responsible for retrieving Error Reports from these systems and submitting necessary corrections by the fifth business day. HUD will not provide additional time to enter corrections.

(E) Correction of a Previously Reported Status Code When a Mortgagee discovers that a previous Status Code was reported in error, the Mortgagee must:

• report a Status Code 25, Cancel, to advise HUD that the last Status Code reported was in error and should be preserved as a historical record without having an effect on the default sequence; and
• report the correct Status Code.

iii. Collection Communication Timeline

(A) Definition The Collection Communication Timeline sets forth the servicing actions that Mortgagees must take when contacting a Borrower with a Delinquent Mortgage.

(B) Standard The Mortgagee must perform in a timely manner the servicing actions set forth in the following Collection Communication Timeline.

(C) Required Documentation The Mortgagee must document in their servicing file all communication efforts to reach the Borrower early in their delinquency.

iv. Specialized Collection Techniques for Early Payment Defaults and Re-Defaults

(A) Definitions Early Payment Defaults refer to all Mortgages that become 60 Days Delinquent within the first six payments. A Re-Default is a mortgage Default occurring within six months after reinstatement or the successful use of a permanent Home Retention Option.

(B) Standard For Borrowers at risk of Early Payment Default or Re-Default, the Mortgagee must:

• commence telephone contact by the 10thDay after the first missed payment to remind Borrowers of Mortgage Payment timeframes;
• make a minimum of two calls per week after the 10thDay of delinquency, until:
  • contact is established;
  • the Mortgagee determines that the phone contact information is inaccurate, or no longer in service; or
  • until the Mortgagee determines through an Occupancy Inspection that the Property is vacant or abandoned; and
• make reasonable efforts to obtain an alternate phone number and/or follow up with the Borrower using other methods of communication until contact is established.

(C) Required Documentation The Mortgagee must document in their servicing file all specialized collection efforts to reach the Borrowers at risk of Early Payment Default or Re-Default.

v. Telephone Contact Efforts

(A) Standard The Mortgagee must attempt to contact the Borrower via telephone beginning on the 17-20th Day of delinquency, calling a minimum of two times per week until:

• contact is established; or
• the Mortgagee has determined through an Occupancy Inspection that the mortgaged Property is vacant or abandoned.

The Mortgagee is expected to:

• vary the times and days of the week of call attempts to maximize the likelihood of making contact with the Borrower; and
• have policies in place to reduce the call abandon rate and minimize the call wait time.

Promptly after establishing live contact, the Mortgagee must determine whether the Borrower is occupying the Property, ascertain the reason for the delinquency, and inform the Borrower about the availability of Loss Mitigation Options.

Mortgagees are encouraged to have written policies in place for their customer service, loss mitigation, foreclosure prevention, and collections departments for handling inbound and outbound collection calls in accordance with the requirements of this section. Mortgagees should also include in their Quality Control (QC) Plans their methodologies for assessing their compliance with these policies.

(B) Required Documentation The Mortgagee must document in their servicing file all communication efforts to reach a Borrower with a Delinquent Mortgage by telephone.

vi. Collection Letters and Electronic Communications

(A) Standard

(1) Letters and Automatic Notices The Mortgagee must begin mail or electronic communication collection attempts between the 20-25th Day of delinquency.

(2) Electronic Methods of Communication The Mortgagee must communicate through one of the following methods of communication, if it elects to communicate electronically with Borrowers:

• email;
• secure web portals (such as online account management tools accessible by Borrowers); and
• other reliable communication methods through which the Mortgagee has been able to effectively communicate with Borrowers in the past.

The Mortgagee must ensure that their electronic signature technology complies with all requirements of the Electronic Signatures in Global and National Commerce (E-SIGN) Act, 15 U.S.C. 7001 et seq. The Mortgagee must include within the electronic communication the Mortgagee’s email address, telephone number, and/or website address.

Mortgagees are encouraged to have policies in place to reduce the Mortgagee’s time to respond to Borrowers’ electronic communications. Mortgagees are encouraged to have written policies in place for their customer service, loss mitigation, foreclosure prevention, and collections departments for handling inbound electronic communications in accordance with the requirements of this section and to include in their QC Plans their methodologies for assessing their compliance with these policies.

(3) Selecting Best Method of Communication The Mortgagee must use the method or methods of communication most likely to receive a response from each Borrower and take into account the Borrower’s expressed preference for using certain methods of communication. The Mortgagee must effectively communicate with persons with hearing, visual, and other communications-related disabilities and persons with limited English proficiency.

(B) Required Documentation The Mortgagee must document in their servicing file all mail and electronic communication attempts to reach a Borrower with a Delinquent Mortgage.

vii. Reporting the Delinquency to HUD

The Mortgagee must report accounts in Default in HUD’s SFDMS using the appropriate Default Status Code and Default Reason Code, if the reason for Default is known, and must continue reporting the applicable Status Code until the delinquency is resolved.

viii. Assigned Loss Mitigation Personnel

The Mortgagee must designate personnel to respond to the Borrower’s inquiries and to assist them with Loss Mitigation Options no later than the 45th Day of delinquency.

The Mortgagee must provide the contact information of their loss mitigation or customer assistance hotline, offering direct phone access to assigned loss mitigation personnel, in the Delinquency Notice Cover Letter.

ix. Required Notices to Borrower by 45th Day of Delinquency

(A) Standard Beginning on the 32nd Day, but no later than the 45th Day from the date payment was due, the Mortgagee must send a:

• Notice of Homeownership Counseling Availability; and
• Servicemembers Civil Relief Act (SCRA) Disclosure (form HUD-92070).

(1) Notice of Homeownership Counseling Availability The Mortgagee must provide a Borrower with a Delinquent Mortgage with a notice describing the availability of housing counseling offered by HUD-approved housing counseling agencies and by the Mortgagee. The Mortgagee may use the model Notification to Homeowners of Availability of Housing Counseling Services or create their own, so long as the Notification:

• informs the Borrower with a Delinquent Mortgage of the availability of housing counseling services provided by HUD-approved housing counseling agencies;
• is provided in accessible formats or languages when such Borrower communications have been requested by persons with disabilities and persons with limited English proficiency;
• provides instructions for locating a HUD-approved housing counseling agency in the Borrower’s area and includes the HUD toll-free telephone number (800) 569-4287, through which Borrowers can obtain a list of housing counseling agencies;
• provides instructions for persons with hearing or speech impairments to access HUD’s toll-free number via Text Telephone (TTY) by calling the Federal Information Relay Service at (800) 877-8339;
• provides instructions for using the HOPE NOW toll-free telephone number (888) 995-HOPE (4673); and
• describes housing counseling and the potential benefits of engaging in housing counseling.

If using the model Notification, the Mortgagee must not alter this Notification or use the HUD seal on any other document.

(2) Servicemembers Civil Relief Act Disclosure The Mortgagee must send the form for the required notice of servicemember rights (form HUD-92070) to all Borrowers in Default on a residential Mortgage and must include the toll-free Military OneSource number to call if servicemembers or their dependents require further assistance.

(B) Required Documentation The Mortgagee must document in their servicing file the dates on which it sent the Notice of Homeownership Counseling Availability and the SCRA disclosure. The Mortgagee must be able to provide to HUD, upon request, the language in its Notice of Homeownership Counseling Availability.

x. Required Notices to Borrower by 60th Day of Delinquency

(A) Standard Beginning on the 32nd Day but no later than the 60th Day from the date payment was due, the Mortgagee must send the:

• Delinquency Notice Cover Letter; and
• “Save your Home – Tips to Avoid Foreclosure” pamphlet (form HUD-2008-5-FHA).

(1) Delinquency Notice Cover Letter The Mortgagee must send the “Save Your Home: Tips to Avoid Foreclosure” brochure with a cover letter that includes:

• highly visible information about any availability of language access services offered by the Mortgagee for Borrowers with limited English proficiency (this information must be provided, at a minimum, in Spanish and must include an advisement to seek translation or other language assistance);
• the following information related to the Mortgage:
  • number of late payments;
  • total amount of any Late Charges incurred;
  • the month of each late payment; and
  • the original due date of each late payment;
• the Mortgagee’s mailing address and toll-free telephone numbers for Borrowers needing to contact the Mortgagee’s assigned loss mitigation and/or customer assistance personnel;
• a request for current Borrower financial information necessary for Loss Mitigation analysis;
• toll-free telephone numbers for Borrowers needing to contact the Mortgagee’s loss mitigation and/or customer assistance personnel; and
• the toll-free telephone number for Borrowers seeking information on HUD-approved housing counseling agencies, (800) 569-4287, along with the toll-free Federal Information Relay Service number of (800) 877-8339 for Borrowers who may need a Telecommunication Device for the Deaf (TDD) to call the housing counseling line.

(2) “Save Your Home: Tips to Avoid Foreclosure” Brochure The brochure (form HUD-2008-5-FHA) is available in English, Spanish, Chinese, and Vietnamese. Mortgagees may either obtain the brochure by accessing HUD’s Direct Distribution Center or reproduce electronic versions of the brochure at their own expense. The Mortgagee may not change the contents of the brochure in any way.

(3) Resending Notices The Mortgagee must resend the cover letter and accompanying “Save your Home: Tips to Avoid Foreclosure” brochure (form HUD-2008-5-FHA) any time the Mortgage becomes 45 Days Delinquent unless the beginning of the new delinquency occurs less than six months after a prior notice and pamphlet was mailed.

(4) Exception for Borrowers in Bankruptcy

(a) Standard The Mortgagee is not required to send the cover letter and “Save Your Home: Tips to Avoid Foreclosure” brochure if the Borrower has filed bankruptcy before becoming 45 Days Delinquent, and, in the opinion of the Mortgagee’s legal counsel, providing the cover letter and brochure would be a violation of the automatic stay. The Mortgagee must send the cover letter and “Save Your Home: Tips to Avoid Foreclosure” once the automatic stay is lifted.

(b) Required Documentation The Mortgagee must document this bankruptcy-related exception in the servicing file.

(B) Required Documentation The Mortgagee must document in their servicing file the dates on which it sent the Delinquency Notice Cover Letter and “Save Your Home: Tips to Avoid Foreclosure” brochure.

xi. Occupancy Inspection

(A) Definitions An Occupancy Inspection is a visual inspection of a mortgaged Property by the Mortgagee to determine if the mortgaged Property has become vacant or abandoned and to confirm the identity of any occupants. An Occupancy Follow-Up is an attempt to communicate with the Borrower via letter, telephone, or other method of communication, other than on-site inspection, to determine occupancy when the Mortgage remains in Default after the initial inspection and the Mortgagee has not determined the Borrower’s occupancy status.

(B) Standard If the Mortgagee is unable to reach the Borrower(s) by the 45th Day of delinquency, the Mortgagee must perform a visual inspection of the mortgaged Property to determine occupancy status.

(1) Initial Occupancy Inspection The Mortgagee must perform the initial Occupancy Inspection no later than the 60th Day of delinquency when:

• the Mortgage is in Default;
• a payment has not been received within 45 Days of the due date; and
• efforts to reach the Borrower or occupant have been unsuccessful.

(2) Follow-Ups and Continued Inspections If the Mortgagee is unable to determine the Borrower’s occupancy status through the initial Occupancy Inspection, the Mortgagee must perform Occupancy Follow-Ups and, if necessary, Occupancy Inspections every 25-35 Days from the last inspection until the occupancy status is determined.

(3) Occupancy Inspections during Bankruptcy When payments are not submitted as scheduled by a Borrower in bankruptcy, the Mortgagee must contact either the bankruptcy trustee or the Borrower's bankruptcy attorney for information concerning the status of the Borrower, to determine if an Occupancy Inspection is needed. The Mortgagee must continue to perform exterior-only visual inspections until the Default is cured, the Property is disposed of, or the bankruptcy court has granted approval for the Mortgagee to contact the Borrower or to take any required Property P&P actions. If the Mortgagee determines that the Property is vacant or abandoned during the period in which the Mortgagee is prohibited from contacting the Borrower, the Mortgagee must note:

• the date it made its determination in the servicing file; and
• that contact with the attorney or trustee has been made.

(4) Determination that the Property is Vacant or Abandoned If the Mortgagee determines through an Occupancy Inspection that the Property is vacant or abandoned, the Mortgagee must:

• send a letter, via certified mail or other method providing delivery confirmation, to Borrowers at the property address informing them of the Mortgagee’s determination that the Property is vacant or abandoned. This letter must include the Mortgagee’s contact information;
• commence Vacant Property Inspections; and
• take appropriate Property Preservation and Protection actions to secure and maintain the Property.

(C) Required Documentation The Mortgagee must retain in the servicing file:

• the dates and methods of Occupancy Follow-Ups and vacancy letters;
• evidence of payment to the inspector;
• copies of all completed inspection reports; and
• any accompanying follow-up documentation for Occupancy Inspections.

For all inspections, Mortgagees must also retain in its inspection report the general condition of the Property and any actions taken to protect and preserve the Property, and must include on each inspection report the following items, where applicable:

• date of the inspection
• identity of the individual inspector and the inspection company
• Is the Property occupied?
• Is the house locked?
• Is the grass mowed and/or are shrubs trimmed?
• Is there any apparent damage?
• Is any exterior glass broken?
• Are there any apparent roof leaks?
• Does the house contain Personal Property and/or debris?
• Are any doors or windows boarded?
• Is the house winterized?
• Are there any repairs necessary to adequately preserve and protect the Property?

xii. Face-to-Face Interviews

(A) Standard The Mortgagee must have a face-to-face interview with the Borrower or make a reasonable effort to arrange a face-to-face interview no later than the 61st Day of delinquency, unless exempt.

(1) Face-to Face Meetings Not Required The Mortgagee is not required to conduct a face-to-face interview if:

• the Borrower does not live in the mortgaged Property;
• the holding Mortgagee, servicing Mortgagee, or branch office of either is not located within 200 miles of the mortgaged Property (unless the Mortgage is insured under Section 248);
• the Borrower has clearly indicated that they will not cooperate with a face-to-face interview; or
• the Borrower’s payment is current due to an agreed-upon repayment plan or Forbearance Plan.

(2) Reasonable Effort in Arranging a Face-to-Face Interview The Mortgagee must send to the Borrower via Certificate of Mailing or Certified Mail a letter providing information on:

• the availability of face-to-face interviews; and
• how to schedule the interview.

The Mortgagee must also attempt to contact the Borrower at the mortgaged Property to provide information on the availability of face-to face interviews. The Mortgagee may use a third-party vendor to establish this contact with the Borrower and to schedule the Borrower’s face-to-face interview with a Mortgagee representative.

(3) Mortgagee Representative Authority The Mortgagee must ensure that the employee representing the Mortgagee at face-to-face interviews has the authority to propose and accept reasonable repayment plans. Where a Mortgagee’s representative exceeds their authority by agreeing to a repayment plan at the time of the face-to-face interview, the Mortgagee must still accept the repayment plan agreed to by its representative, without regard as to whether the representative overstepped their authority.

(B) Required Documentation The Mortgagee must document in its servicing file:

• the reason the face-to-face meeting is not required, if applicable;
• the dates and methods of its attempts at arranging a face-to-face interview; and
• the date of its face-to-face interview with the Borrower.

xiii. Reporting the Reason for the Default to HUD

(A) Standard The Mortgagee must ensure that FHA’s SFDMS reflects the appropriate Default Reason Code for the Default by the 90th Day of delinquency.

(B) Unable to Contact Borrower If the Mortgagee reports DDR Code 31, Unable to Contact Borrower, in SFDMS, the Mortgagee must document its efforts to contact the Borrower in the servicing file and continue to try to determine the reason for the delinquency Default.

xiv. Vacant Property Inspections

(A) Definition A Vacant Property Inspection is an inspection by the Mortgagee of a Property that is not occupied.

(B) Standard The Mortgagee must take reasonable actions to protect the value of the security, including performing the following required inspections for vacant or abandoned Properties. The Mortgagee is liable for any damage resulting from the Mortgagee’s failure to preserve and protect the Property unless the Mortgagee can prove that the damage occurred prior to the date the Property became vacant.

(1) First-Time Vacant Property Inspection

(a) Definition A First-Time Vacant (FTV) Property Inspection is the first inspection performed by the Mortgagee to ascertain the condition of a vacant or abandoned Property.

(b) Standard The Mortgagee must perform the FTV Property Inspection on the date it takes possession of a vacant or abandoned Property. The Mortgagee must:

• secure the Property, if possible;
• pressure-test all water supply and upload photographs of the results of the test into P260;
• address all imminent and urgent safety hazards and determine what repairs are required to prevent damage to the property; and
• photograph the primary exterior facades and interior areas of the primary and secondary Structures, including any damage found.

(c) Required Documentation The Mortgagee must document the overall condition and any damage to the grounds and Structures in the inspection report. The Mortgagee must advise HUD when the mortgaged Property becomes vacant by reporting in SFDMS:

• the Occupancy Status Code; and
• the date when the Mortgagee determined that the mortgaged Property became vacant.

(2) Vacant Property Inspection

(a) Standard

(i) Vacant Property Inspection Cycle The Mortgagee must perform Vacant Property Inspections every 25-35 Days after the FTV Property Inspection until the mortgage Default is cured or until conveyance of the property to HUD. In areas of high vandalism or where local ordinances require more frequent Vacant Property Inspections, Mortgagees may perform Vacant Property Inspections more frequently than HUD’s 25-35 Day requirement and request reimbursement for these inspection costs. At each inspection, the Mortgagee must:

• photograph the overall condition of the interior and exterior of the primary and all secondary Structures;
• monitor the security and maintenance of the Property;
• assess and manage damage that requires repair, replacement, or removal; and
• address all emergency repairs.

(ii) Required Documentation The Mortgagee must document all Property P&P activities performed on vacant Properties.

(3) Required Documentation The Mortgagee must retain in the servicing file:

• evidence of payment to the inspector;
• copies of all completed inspection reports and photographs of the Property; and
• any police reports and/or letters from a local law enforcement agency evidencing the need for additional protective measures.