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FHA Single Family Housing Policy HandbookTable of Contents123456This draft section does not include updates from Mortgagee Letter 2020-21, Enhancements toFHA’s Claims Without Conveyance of Title (CWCOT) Procedures andMortgagee Letter 2020-22, FHA’s COVID-19 Loss Mitigation Options.FHA Single Family Housing Policy HandbookTABLE OF CONTENTS7III.SERVICING AND LOSS MITIGATION .38A. TITLE II INSURED HOUSING PROGRAMS FORWARD MORTGAGES . 3435363738394041424344Servicing of FHA-Insured Mortgages . 3a. Servicing Roles and Responsibilities . 3b. Responsibility for Servicing Actions . 4c. Providing Information to HUD . 6d. Communication with Borrowers and Authorized Third Parties . 6e. Payment Administration . 7f. Servicing Fees and Charges . 12g. Escrow. 13h. Insurance Coverage Administration . 17i. Mortgage Insurance Premium Remittance. 19j. Post-Endorsement Mortgage Amendments . 20k. Mortgage Insurance Premium Cancellation. 26l. Mortgage Insurance Termination. 29m. Disclosures . 31n. Record Retention – Servicing File . 322. Default Servicing . 33a. Mortgages in Delinquency or Default. 33b. HUD Default Servicing Contact . 34c. Reporting to Consumer Reporting Agencies and the IRS . 34d. Late Charges . 34e. Partial Payments for Mortgages in Default . 36f. Lien Status . 37g. Imminent Default . 37h. Early Default Intervention . 38i. Loss Mitigation Review Process . 52j. HUD’s Loss Mitigation Program . 59k. Home Retention Options. 63l. Home Disposition Options . 92m. Loss Mitigation Incentives . 117n. Non-Monetary Default . 117o. Distressed Asset Stabilization Program . 119p. Claims Without Conveyance of Title [This draft section does not include updates fromMortgagee Letter 2020-21, Enhancements to FHA’s Claims Without Conveyance of Title(CWCOT) Procedures] . 119q. Reinstatement . 123r. Foreclosure . 124Handbook 4000.1 – Servicing and Loss MitigationDRAFT – Posted 07/14/2020i
FHA Single Family Housing Policy HandbookTable of Contents123456789101112131415s. Acquiring Possession . 139t. Conveyance of Acquired Properties . 142u. Deficiency Judgments . 1723. Programs and Products [This draft section does not include updates from Mortgagee Letter2020-22, FHA’s COVID-19 Loss Mitigation Options] . 174a. Adjustable Rate Mortgages . 174b. Assumptions. 179c. Hawaiian Home Lands Mortgages (Section 247 Mortgages) . 182d. Insured Mortgages on Indian Land (Section 248 Mortgages) . 186e. Section 222 Mortgages . 188f. Good Neighbor Next Door. 190g. HOPE for Homeowners . 193h. Nehemiah Housing Opportunity Grants Program. 196i. Servicing FHA-Insured Mortgages for Servicemember-Borrowers . 197j. Section 235 Mortgages . 200161718APPENDIX 4.0 – FHA-HOME AFFORDABLE MODIFICATIONPROGRAM (FHA-HAMP) CALCULATIONS (APPLIES TOSERVICING ONLY) .27019Handbook 4000.1 – Servicing and Loss MitigationDRAFT – Posted 07/14/2020ii
III. SERVICING AND LOSS MITIGATIONA. Title II Insured Housing Programs Forward Mortgages1. Servicing of FHA-Insured Mortgages1III.2A. TITLE II INSURED HOUSING PROGRAMS FORWARD MORTGAGES34567This section provides the standards and procedures applicable to the servicing of all SingleFamily (one to four units) Mortgages insured under Title II of the National Housing Act, exceptfor Home Equity Conversion Mortgages (HECM). The Mortgagee must fully comply with all ofthe following standards and procedures when servicing a Mortgage insured by the FederalHousing Administration (FHA).89101112SERVICING AND LOSS MITIGATIONServicing of FHA-Insured MortgagesOnly FHA-approved Mortgagees may service FHA-insured Mortgages. Mortgagees may serviceMortgages they hold or that are held by other FHA-approved Mortgagees.a. Servicing Roles and ResponsibilitiesDefinitions1314The Mortgage Holder is the Entity who holds title to the FHA-insured Mortgage and hasthe right to enforce the mortgage agreement.151617The Mortgage Servicer (Servicer) is the Entity responsible for performing servicingactions on FHA-insured Mortgages on its behalf or on behalf of or at the direction ofanother FHA-approved Mortgagee.18Standard1920Mortgage Holders must ensure all FHA-insured Mortgages are serviced by a Servicer inaccordance with FHA requirements and all applicable laws.2122Servicers must service all FHA-insured Mortgages in accordance with FHA requirementsand all applicable laws.23Laws Applicable to Mortgage Servicing Generally24252627Mortgagees must comply with all laws, rules, and requirements applicable tomortgage servicing, including full compliance with the applicable requirements underthe purview of the Consumer Financial Protection Bureau (CFPB), including the RealEstate Settlement Procedure Act (RESPA) and the Truth in Lending Act (TILA).282930FHA requirements that are more stringent or restrictive than those provided for inapplicable law are set forth in this SF Handbook and the Mortgagee must complywith these requirements.Handbook 4000.1 – Servicing and Loss MitigationDRAFT – Posted 07/14/20203
III. SERVICING AND LOSS MITIGATIONA. Title II Insured Housing Programs Forward Mortgages1. Servicing of FHA-Insured Mortgages1234Contract TermsWhere mortgage contract terms are more stringent or restrictive than those providedfor in applicable law, the Mortgagee must comply with the mortgage contract terms.Nondiscrimination Policy567891011Mortgagees must comply with all antidiscrimination laws, rules, and requirementsapplicable to servicing performing FHA-insured Mortgages and FHA-insuredMortgages in Default, including full compliance with the applicable requirements of: the Fair Housing Act, 42 U.S.C. §§ 3601 et seq.); the Fair Credit Reporting Act, 15 U.S.C. § 1681; and the Equal Credit Opportunity Act (ECOA), 15 U.S.C. § 1691andcorresponding regulations at 12 CFR part 202.1213141516The Mortgagee must make all determinations with respect to the adequacy of theBorrower’s income in a uniform manner that does not discriminate because of theactual or perceived race, color, religion, sex, national origin, familial status, handicap,marital status, sexual orientation, gender identity, source of income of the Borrower,or location of the Property.17b. Responsibility for Servicing Actions18Mortgage Holders are responsible for all servicing actions, including the acts of its Servicers.1920Servicers are responsible for their actions in servicing FHA-insured Mortgages, includingactions taken on behalf, or at the direction, of the Mortgage Holder.2122The costs associated with subservicing may not be imposed on the Borrower or passed alongto HUD in a claim for mortgage insurance benefits.2324Responsibility during Transfers of Servicing RightsDefinitions2526The Transferor Servicing Mortgagee is the Mortgage Servicer that transfers servicingresponsibilities.2728The Transferee Servicing Mortgagee is the Mortgage Servicer to which the servicingresponsibilities have been transferred.2930The Transfer Date is the date on which the Borrower’s Mortgage Payment is first dueto the Transferee Servicing Mortgagee.Handbook 4000.1 – Servicing and Loss MitigationDRAFT – Posted 07/14/20204
III. SERVICING AND LOSS MITIGATIONA. Title II Insured Housing Programs Forward Mortgages1. Servicing of FHA-Insured Mortgages1Standard234The Transferor Servicing Mortgagee remains responsible for the servicing of anFHA-insured Mortgage until the Transfer Date. The Transferor Servicing Mortgageemust verify that the change of legal rights to service has been reported accurately.567891011On the Transfer Date, the Transferee Servicing Mortgagee assumes responsibility for: all servicing actions, including ensuring resolution of any servicing errors thatwere, and remain, the responsibility of the Transferor Servicing Mortgagee; obtaining the complete mortgage file, including origination and servicingrecords; and ensuring that the original Mortgage, mortgage Note, or deed of trust ispreserved.1213141516171819Required DocumentationThe Transferor Servicing Mortgagee must report the Transfer Date and update themortgage record in FHA Connection (FHAC) within 15 Days of the Transfer Date.ii. Responsibility for Servicing when the Mortgage is SoldDefinitionA Mortgage Sale is a transaction in which a Mortgage Holder sells the Mortgage toanother FHA-approved Mortgagee.Standard20212223The Selling Mortgage Holder relinquishes all rights and obligations under thecontract for mortgage insurance on the effective date of the sale. The SellingMortgage Holder remains responsible for Mortgage Insurance Premiums (MIP) untilnotice of the sale is received by HUD via FHAC.242526272829The Purchasing Mortgage Holder is the Mortgagee that purchases the Mortgage andthereby succeeds to all rights and obligations of the Selling Mortgage Holder underthe contract for mortgage insurance. As of the effective date of the sale, thePurchasing Mortgage Holder becomes responsible for outstanding MIP obligations,regardless of the date of accrual, and must confirm that the details of the mortgagesale have been reported accurately.30313233Required DocumentationThe Selling Mortgage Holder must report the effective date of the sale of theMortgage as the “Transfer Date” and update the mortgage record in FHAC within 15Days of the date of the sale.Handbook 4000.1 – Servicing and Loss MitigationDRAFT – Posted 07/14/20205
III. SERVICING AND LOSS MITIGATIONA. Title II Insured Housing Programs Forward Mortgages1. Servicing of FHA-Insured Mortgages12345678Registration with Mortgage Electronic Registration System, Inc.DefinitionThe Mortgage Electronic Registration System (MERS) is an electronic trackingsystem identified as nominee for a Mortgage Holder.StandardMortgagees may voluntarily register FHA-insured Mortgages with MERS. TheMortgage Holder remains responsible for all servicing actions.c. Providing Information to HUD9101112The Mortgagee must respond to verbal or written requests for individual accountinformation, including all servicing information and related data and the entire mortgageorigination file, from HUD staff or from a HUD-approved counseling agency acting with theconsent of the Borrower.131415When HUD staff request information, the Mortgagee must make available legible documentsand in the format (electronic or hard copy) requested within 24 hours of the request, or asotherwise permitted by HUD.16d. Communication with Borrowers and Authorized Third Parties17Definition1819Authorized Third Parties are parties who are not Borrowers on the Mortgage but who areauthorized to communicate with Mortgagees regarding a Mortgage.20ii. Standard212223The Mortgagee must provide mortgage information and arrange for individualconsultation with the Borrower and/or the Authorized Third Party, upon request by theBorrowers.2425The Mortgagee must comply with all laws, rules, and requirements applicable to thirdparty access to mortgage information.26iii. Required Documentation2728293031If communicating with an Authorized Third Party, the Mortgagee must includedocumentation of the authorization in the servicing binder: a copy of a signed authorization from the Borrower; a copy of a Power of Attorney (POA), order of guardianship, or otherdocumentation authorizing that third party to act on behalf of the Borrower; orHandbook 4000.1 – Servicing and Loss MitigationDRAFT – Posted 07/14/20206
III. SERVICING AND LOSS MITIGATIONA. Title II Insured Housing Programs Forward Mortgages1. Servicing of FHA-Insured Mortgages123456789 other documentation showing legal authorization to access the Borrower’srecords.e. Payment AdministrationReceipt of PaymentsDefinitionA Trust Clearing Account refers to a fiduciary account (usually a temporary one)containing Borrower funds that will be transferred by the Mortgagee to anotheraccount before the end of an accounting period.Standard1011The Mortgagee must either use a Trust Clearing Account or special custodial accountto hold all payments on the insured Mortgage.121314The Mortgagee’s Trust Clearing Account may be used for collections received on alltypes of Mortgages. If a Trust Clearing Account is not used, the Mortgagee mustimmediately transfer payments into a special custodial account.15Application of Payments161718Mortgagees using special custodial accounts must withdraw an amount equal to theprincipal, interest, and service charges within 30 Days after deposit and post to theBorrower’s records accordingly.192021222324252627The Mortgagee must apply Borrower payments in the following order: to MIPs due, if any; to charges for ground rents, taxes, special assessments, including any assessmentsrelated to a Property Assessed Clean Energy (PACE) obligation, flood insurancepremiums, if required, and fire and other hazard insurance premiums; to interest on the Mortgage; to amortization of the principal of the Mortgage; and to Late Charges, provided, however, that any amounts owed for Late Chargesmust be handled consistent with TILA regulations.282930The Mortgagee may only apply funds for payments of optional insurance coveragepremiums after the application of funds to all other elements of the monthly MortgagePayment.Handbook 4000.1 – Servicing and Loss MitigationDRAFT – Posted 07/14/20207
III. SERVICING AND LOSS MITIGATIONA. Title II Insured Housing Programs Forward Mortgages1. Servicing of FHA-Insured Mortgages1234567891011121314iii. Return of Partial Payments for Less than the Amount DueDefinitionA Partial Payment is a payment of any amount less than the full amount due under theMortgage at the time the payment is tendered, including Late Charges and amountsadvanced by the Mortgagee on behalf of the Borrower.StandardFor performing Mortgages, the Mortgagee may return any Partial Payment to theBorrower with a letter of explanation.Required DocumentationThe Mortgagee must note in its servicing file any Partial Payments received and, ifapplicable, documentation on the date the payment was returned with a letter ofexplanation.iv. Application of Partial PrepaymentsDefinition1516A Partial Prepayment is a payment of part of the principal amount before the date onwhich the principal is due.1718An Advance Full Monthly Payment is the payment of an amount larger than the fullmonthly payment, equaling an additional full monthly payment.19Standard20212223The Mortgagee must apply Partial Prepayments as requested by the Borrower aseither: advance full monthly payments; or additional payments toward reducing principal and future monthly payments.24252627In the event that the Borrower does not specify how the Partial Prepayment should beapplied, the Mortgagee should communicate with the Borrower to determine themethod of application or apply the payment in a manner previously communicated tothe Borrower.28293031If the Borrower elects to have Partial Prepayments equal to a full monthly paymentapplied as an advance full monthly payment, the Mortgagee must allow the Borrowerto skip an equal number of installments in the future without creating a mortgageDefault or incurring a Late Charge.Handbook 4000.1 – Servicing and Loss MitigationDRAFT – Posted 07/14/20208
III. SERVICING AND LOSS MITIGATIONA. Title II Insured Housing Programs Forward Mortgages1. Servicing of FHA-Insured Mortgages12v. PrepaymentDefinitions34A Partial Prepayment is a payment of part of the principal amount before the date onwhich the principal is due.56A Payoff or Prepayment in Full is the payment in whole of the principal amount ofthe mortgage Note in advance of expiration of the term of the mortgage Note.78The Installment Due Date is the first Day of the month, as provided for in the securityinstrument.91011121314151617StandardThe Mortgagee must accept a prepayment of a Mortgage in whole or in part on anyInstallment Due Date without penalty to the Borrower.Prepayment ProceduresMortgages Closed On or After January 21, 2015The Mortgagee must accept a prepayment on a Mortgage closed on or afterJanuary 21, 2015, at any time and in any amount. The Mortgagee must calculatethe interest as of the date the prepayment is received, not as of the nextInstallment Due Date.18Mortgages Closed Before January 21, 201519(a) Mortgages Insured On or After August 2, 198520212223The Mortgagee must accept a prepayment on a Mortgage insured on or afterAugust 2, 1985 and closed before January 21, 2015, if the Borrower prepaysthe Mortgage in full on the first Day of any month in the term of theMortgage.2425262728293031If prepayment is offered on a day other than the Installment Due Date, theMortgagee may: refuse to accept the prepayment until the first Day of the next month;or accept the prepayment and require the payment of interest to the firstDay of the next month. For Prepayment in Full, this option may onlybe used if the Mortgagee has provided the Payoff Disclosure to theBorrower.Handbook 4000.1 – Servicing and Loss MitigationDRAFT – Posted 07/14/20209
III. SERVICING AND LOSS MITIGATIONA. Title II Insured Housing Programs Forward Mortgages1. Servicing of FHA-Insured Mortgages1(b) Mortgages Insured Prior to August 2, 19852(i) Definitions345Notice of Intent to Prepay refers to the advance notice that Borrowers onMortgages insured before August 2, 1985 must provide in order to prepaytheir FHA-insured Mortgages in full without penalty.6789The 30-Day Advance Prepayment Notice Period refers to the timerequirement for the Borrower to provide advance notice to the Mortgageefor prepayment of an FHA-insured Mortgage insured prior to August 2,1985.10(ii) Standard111213141516The Mortgagee must accept prepayment on a Mortgage insured prior toAugust 2, 1985, if the Borrower: submits to the Mortgagee a Notice of Intent to Prepay at least 30Days prior to the prepayment; and prepays the Mortgage in full on the first Day of any month in theterm of the Mortgage.17181920212223242526If a prepayment is offered on a day other than the Installment Due Date,the Mortgagee may: refuse to accept the prepayment until the first Day of the monthfollowing the expiration of the 30-Day Advance PrepaymentNotice Period; or accept prepayment and require the payment of interest to the firstDay of the month following the expiration of the 30-Day AdvancePrepayment Notice Period. For Prepayment in Full, this optionmay only be used if the Mortgagee has provided the PayoffDisclosure to the Borrower.27(iii)Borrower’s Notice of Intent to Prepay282930For Mortgages insured prior to August 2, 1985, the Borrower must send,and the Mortgagee must receive, the Borrower’s Notice of Intent to Prepayat least 30 Days prior to prepayment.31323334353637If the Borrower submits a prepayment without previously sending aBorrower’s Notice of Intent to Prepay, the Mortgagee may considerreceipt of the prepayment as the Borrower’s Notice of Intent to Prepay.The Mortgagee may choose to: provide a Payoff Disclosure, enabling the Mortgagee to:o defer acceptance of prepayment until the first Day of the monthfollowing the date prepayment is tendered; orHandbook 4000.1 – Servicing and Loss MitigationDRAFT – Posted 07/14/202010
III. SERVICING AND LOSS MITIGATIONA. Title II Insured Housing Programs Forward Mortgages1. Servicing of FHA-Insured Mortgages1234567891011 o accept the prepayment and require the payment of interest tothe first Day of the month following the date prepayment istendered; oraccept the prepayment on the date tendered, which limits theMortgagee’s collection of interest to that prepayment date.(iv) Effective Dates for Notice of Intent to PrepayThe effective date of the Notice of Intent to Prepay is the date that theNotice was received by the Mortgagee, unless the Borrower can producedocumentation showing that the Notice was received earlier. The 30-DayAdvance Prepayment Notice Period required for Mortgages insured priorto August 2, 1985, begins on this date of receipt.12(c) Installment Due Date Falls on a Non-Business Day13141516When the Installment Due Date falls on a non-business day, the Mortgageemust consider a Borrower’s Notice of Intent to Prepay or the receipt of theprepayment amount for a Mortgage closed before January 21, 2015 timely ifreceived on the next business day.17Payoff Disclosure Requirements181920When notified of the Borrower’s intent to prepay, the Mortgagee must send thePayoff Disclosure and copy of the payoff statement directly to the Borrower, evenif the Mortgagee is dealing with an Authorized Third Party.2122The Mortgagee will forfeit any interest collected after the date of prepayment ifthese disclosure requirements are not met.23Trustee’s Fee for Satisfactions2425262728293031If specifically provided for in the security instrument, the Mortgagee may charge theBorrower the amount of the trustee’s fee, plus any reasonable and customary fee forpayment, or for the execution of a satisfaction, release or trustee's deed when the debtis paid in full.Recording Fees for SatisfactionsThe Mortgagee may charge the Borrower a reasonable and customary fee forrecording satisfactions in states where recordation is not the responsibility of theMortgagee.Handbook 4000.1 – Servicing and Loss MitigationDRAFT – Posted 07/14/202011
III. SERVICING AND LOSS MITIGATIONA. Title II Insured Housing Programs Forward Mortgages1. Servicing of FHA-Insured Mortgages12f. Servicing Fees and ChargesDefinition34Allowable Fees and Charges are those costs associated with the servicing of theMortgage that are permitted to be charged to the Borrower.56Prohibited Fees and Charges are those costs associated with the servicing of theMortgage that may not be charged to the 29303132333435StandardReasonable and Customary Fees and ChargesThe Mortgagee may collect certain fees and charges from the Borrower after theMortgage is insured and as authorized by HUD below. All fees must be: reasonable and customary for the local jurisdiction; based on actual cost of the work performed or actual out-of-pocket expensesand not a percentage of either the face amount or the unpaid principal balanceof the Mortgage; and within the maximum amount allowed by HUD.Prohibited Fees and ChargesThe Mortgagee must not charge the Borrower for the following services: costs of telephone calls, personal visits with the Borrower, certified mail, orother activities that are normally considered a part of a prudent Mortgagee’sservicing activity; Mortgagee’s use of an independent contractor such as a tax service to furnishtax data and information necessary to pay property taxes or make thepayments on behalf of the Mortgagee; preparing and providing evidence of Payoff, Reconveyance, or termination ofthe Mortgage; providing information essential to the Payoff; recording the Payoff of the Mortgage in states where recordation is theresponsibility of the Mortgagee; or fees for services performed by attorneys or trustees who are salaried membersof the Mortgagee’s staff.Requests for Approval for Other Fees or ChargesThe Mortgagee must request approval from the National Servicing Center (NSC) tocharge the Borrower for any fee, charge, or service not specifically mentioned in thisSF Handbook. The Homeownership Center (HOC) will determine the maximumamount of any fee based on what is reasonable and customary in the area.Handbook 4000.1 – Servicing and Loss MitigationDRAFT – Posted 07/14/202012
III. SERVICING AND LOSS MITIGATIONA. Title II Insured Housing Programs Forward Mortgages1. Servicing of FHA-Insured Mortgages1iii. Required Documentation23456The Mortgagee must include in the servicing file: documentation of the amount of any fees and charges paid or payable by theBorrower; and documentation supporting the actual cost of any work performed or out-of-pocketexpenses.789101112g. EscrowDefinitionAn Escrow Account is a set of funds collected by the Mortgagee for payment of taxes,insurance, and other items required by the mortgage Note.Escrowing of FundsStandard1314151617181920212223The Mortgagee must segregate escrow funds, including those funds escrowed atclosing, and deposit the funds in a special custodial account characterized by thefollowing: with a financial institution whose accounts are insured by the Federal DepositInsurance Corporation (FDIC) or the National Credit Union Administration(NCUA); that does not limit the Mortgagee’s access to funds, require an advance noticeof withdrawal, or require the payment of a withdrawal penalty; that clearly identifies the type of funds being held in that account; and the Mortgagee may maintain a “cushion” that may not be increased beyondwhat is acceptable under RESPA regulations.242526Mortgagees utilizing a Trust Clearing Account must withdraw the portion that is to beapplied to escrows within 48 hours of the deposit and must transfer the portion to theescrow account for the Borrower’s Mortgage.272829Mortgagees are not prohibited from holding escrow funds for all types of Mortgagesin a single bank account; however, the Mortgagee must not commingle escrow funds,even temporarily, with funds used for the Mortgagee’s general operating purposes.30Interest on Escrows31HUD regulations neither forbid nor require that escrow accounts earn interest.3233However, if escrow funds are invested, the Mortgagee must pass on to the Borrowerthe net income derived from the investment in accordance with the following:Handbook 4000.1 – Servicing and Loss MitigationDRAFT – Posted 07/14/202013
III. SERVICING AND LOSS MITIGATIONA. Title II Insured Housing Programs Forward Mortgages1. Servicing of FHA-Insured Mortgages12345678910111213141516171819202122232425 The Mortgagee must make investments and payments in compliance withstate and federal agency requirements governing the handling and payment ofinterest earn
FHA Single Family Housing Policy Handbook Table of Contents Handbook 4000.1 - Servicing and Loss Mitigation i DRAFT - Posted 07/14/2020
