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Compliance Update - March 2016
There have been recent changes with the requirements around how a servicer must manage a loan that is originated with a Repair Set Aside.
The borrower has always had to complete the repairs by the deadline listed on the Repair Rider (plus any HUD-approved time extensions, not to exceed one year from the closing date). If they exceeded that date, all disbursements on their loan had to be frozen and their loan placed into default status. However, in the past, HUD would allow the servicer to continue to work with the borrower (if they could not meet those deadlines and were showing progress toward completing the repairs) and only request approval to call the loan Due and Payable as a last resort.
The issuance of ML 2015-10 changed the playing field and stipulated that a loan must be forwarded to HUD for review for due and payable within thirty days of becoming “eligible”. For a repair default, the eligibility is the Repair Rider due date or at the expiration of any previously approved HUD time extensions.
The repair requirements are detailed in the Repair Rider to the Loan Agreement that the borrower signs at the time of loan origination. The time limit specified in the Rider may not exceed one year from the closing of the loan. Extensions to this time may be available if requests are submitted and approved by HUD prior to the expiration of the deadline date and supporting documentation for the extension is provided - but there is no time extensions allowed past one year from the closing date.
Celink’s team of specialists work directly with the borrower from the time the loan boards the ReverseServ system and throughout the repair process making every effort through letters and phone calls to assist the borrower in meeting the deadlines stipulated.
However, there are borrowers who never or only partially follow through with completing the repairs. The specialist stresses the risks if repairs are not completed on time or consequences of not submitting extension requests for additional time before the deadlines. Unfortunately, we still have borrowers that fail to respond or correct the deficiency.
Once the repair deadline has been missed, he specialist will mail a Repair Default letter to the borrower explaining that the loan is now considered in default, stressing that the loan may be called Due and Payable, notifying them that all disbursements from their loan have been suspended, and that they have 30 days to address the issue.
If a HUD-approved inspector has not confirmed the completion of the required repairs within that 30-day window, a request to HUD to call the loan due and Payable is required to be submitted via HERMIT. Rarely, at this point, will HUD deny the request for Due and Payable. Once the loan is called Due and Payable, the only way to stop that process (and avoid foreclosure) is for the repairs to be confirmed completed by a HUD-certified inspector.
Because of this drastic change in the repair process, we want our clients to be aware of the very short timeframe that exists after the deadline date before HUD will call the loan Due and Payable. In order to ensure that the highest numbers of loans complete their repairs, the deadline to complete the required repairs should also be stressed during the origination process, so borrowers are aware of the timelines and risks upfront.