Finance Editor — Refinance .net

When you take a few minutes to read the internal guidelines of lenders on setting up loan modifications, you often find reference to “MORTGAGEE LETTER 2008-21″ where the Department of Housing and Urban Development lays out for lenders the rules of setting up a loan modification compliant with regulations. We thought we would print the actual letter MORTGAGEE LETTER 2008-21 in its entirety here for our readers. Not nearly as obtuse and gobbledygooky as you would expect from a federal doc. Enjoy.

August 14, 2008
MORTGAGEE LETTER 2008-21

TO: ALL APPROVED MORTGAGEES

ATTENTION: Single Family Servicing Managers

SUBJECT: FHA Loss Mitigation Program Updates

The Federal Housing Administration (FHA) is pleased to announce several changes to its Loss Mitigation Program that will strengthen both the Loan Modification and Partial Claim Initiatives.

While these changes are designed to address borrowers who are facing serious defaults, most delinquencies can and should be resolved through early intervention. Mortgagees are reminded of the critical importance of early and constructive contact with delinquent borrowers and the requirement to notify borrowers of the availability of default counseling by HUD-approved counseling agencies.

Loss Mitigation Program Changes

This Mortgagee Letter announces three changes to the existing Loss Mitigation program designed to give mortgagees additional latitude to help borrowers cure defaults and retain homeownership. The changes noted below are effective immediately.

First, with respect to Loan Modifications, mortgagees may use the Treasury 10-year constant maturity as a basis for establishing the maximum interest rate for loan modifications. The maximum interest allowable should be calculated as 200 basis points above the monthly average yield on United States Treasury Securities, adjusted to a constant maturity of 10 years. Mortgagees shall refer to the rate that is in effect as of the date of execution of the loan modification. For information on the 10-year monthly constant maturities, please refer to the statistical release H.15, which is available on the following web site: http://www.federalreserve.gov/releases/h15/data.htm

Next, where loss mitigation is being attempted after foreclosure has been initiated, mortgage servicers and mortgagors have advised that foreclosure related costs and legal fees are often impediments to successful loss mitigation. Many mortgagors who are able to resume making monthly mortgage payments frequently do not have sufficient funds to reimburse the mortgagee the legal fees and foreclosure costs incurred prior to qualifying for loss mitigation and therefore are denied participation.

Effective with this Mortgagee Letter, the Department will begin allowing legal fees and foreclosure costs related to a canceled foreclosure action to be incorporated into either the Loan Modification or the Partial Claim subject to the following requirements. This guidance expands and supersedes, in relevant part, the guidance provided in Loan Modifications section F (page 21) and Partial Claims section F (page 26) of Mortgagee Letter 00-05.

For Loan Modifications, legal fees and related foreclosure costs may now be capitalized into the modified principal balance. For Partial Claims (PC), mortgagees may now include legal fees and foreclosure costs related to a canceled foreclosure in the Partial Claim.

Mortgagees are reminded that all such foreclosure costs must reflect work actually completed to the date of the foreclosure cancellation and the attorney fees should not be in excess of the fee schedule that HUD has identified as customary and reasonable for FHA claim reimbursement. Late fees should not be capitalized in a Modification or included in a Partial Claim. As the goal in providing the mortgagor either a Loan Modification or a Partial Claim is to bring the delinquent mortgage current and give the mortgagor a new start, the mortgagee should waive all accrued late fees.

Please refer to Mortgagee Letter 2005-30 (or any subsequent guidance issued by FHA on reasonable and customary foreclosure costs) for the fee schedule for legal fees that HUD has identified as customary and reasonable for FHA claim reimbursement. Lenders should perform a retroactive escrow analysis at the time of the loan modification to ensure that the delinquent payments being capitalized reflect the actual escrow requirements required for those months capitalized.

Finally, in response to the industry’s request to provide adequate time for the mortgagee to complete all required actions related to a loan modification, the Department provides the following clarification. When establishing a loan modification, it is acceptable for mortgagees to include all payments due including an additional month in the loan modification.

Consider the following example. The mortgagor is due for the January 2008 and all subsequent payments. The mortgagee completes its loss mitigation evaluation on June 27, 2008. To allow adequate time to complete the loan modification, obtain all required signatures and provide adequate notice to the mortgagor of the new payment, the mortgagee may include the payments due for July 2008 and August 2008 in the loan modification. The mortgagor will begin remitting payments due under the modified mortgage effective with the installment due September 1, 2008.

Any questions regarding this Mortgagee Letter or requirements for use of the partial claim and loan modification authorities may be directed to HUD’s National Servicing Center (NSC) at 888-297-8685 or hsg-lossmit@hud.gov.

Sincerely,

Brian D. Montgomery
Assistant Secretary for Housing -
Federal Housing Commissioner

There are many types of prepaid cards you can apply for. The term “prepaid” refers to paying for something before you have it. Generally, when this term is used in conjunction with some type of card, it’s almost like having credit. However, prepaid debit cards are a little different to prepaid credit cards.

A typical debit card is issued by retailers, other vendors, or more often, banks. These little plastic cards enable you to use your account almost as if the bank was ‘loaning’ you money – it just comes out of your bank account. It allows you to pull cash out of your account from anywhere you can swipe a card, and you can also check the balance remaining in your account. Every time you spend money, either by withdrawing or by buying something, the money is taken from an account at the bank, or a prepaid amount on the debit card.

With prepaid debit cards, you are buying a debit card with a set amount. Prepaid debit cards have a line of credit that is the same as the mass amount on deposit with the company on the card, making it a “pre-funded” instead of borrowed way to spend. For example, if you spend $20 on a prepaid debit card, you will have $20 on that card (unless the institution you purchased it from charges a fee). Instead of money being taken out of an account somewhere in a bank, every time you make a purchase or take money “out”, it will be taken directly from the balance on the prepaid card. There is a data strip on the back of the card that reads information to the computer, when swiped through the machine, and it shows how much you have left on your prepaid debit card. You can “reload” your card, (that is, put more money on it to spend) at the same place you bought it, some retailers, a few check cashing places, and certain kinds of kiosks.

Debit cards and prepaid debit cards are different from the cards that banks give just for withdrawing your money out of an ATM (automatic teller machine). Debit cards and prepaid debit cards don’t require a PIN (personal identification number) to use the funding on the balance, or in the account, unless the user is trying to withdraw money from an ATM. Another very good reason people like debit cards or prepaid debit cards is that they don’t require or run a credit check on the applicant – so even those with destroyed credit can normally get one. This way, they have a way to easily access their money without extremely high interest rates.

Debit cards and prepaid debit cards have the “Visa” or “Mastercard” logos on them to ensure they can work in almost every way a normal credit card can be used. Visa and Mastercard began placing their logos on these types of cards in the late 1980s.

Perhaps the greatest thing about these cards is that they help you control your spending. You absolutely cannot overspend; therefore you can’t go into debt, and you can’t bring fees and charges down on you to cost an arm and a leg. How’s that for smart?

MORTGAGEE LETTER 2008-21 – Hud explains its Loan Modification Rules to Lenders

Credit Cards and Prepaid Debit Cards