We know HUD’s importance to the industry, but this isn’t the most provocative or scintillating topic. When I asked my wife if she enjoyed reading Part I she replied, “That’s nice, honey!” Though she’s an industry outsider, I’m pretty sure you haven’t waited for this second installment as eagerly as the last episode of Game of Thrones or the premiere of True Blood. The similarity between the drama in those shows and the assignment to HUD process would be a huge stretch. However, I promise to make this second installment as understandable (and exciting?) as possible. Let’s continue.
To review, there are different criteria loans must meet to be eligible for assignment to HUD, and this criteria is reviewed several times as the loan balance approaches the critical threshold of 98 percent of the maximum claim amount. Once final review is complete and everything is in place, loans can be submitted to HUD for approval to be assigned. This process is completed within the HERMIT servicing system. Loans can be submitted as early as 97.5 percent MCA, but cannot be approved until they reach 98 percent.
First, servicers must upload a submission packet into HERMIT, which includes: -A copy of the “Letter of Intent to Assign” (a notification to HUD of the intent to assign the loan to them) -A copy of the “Letter Notifying the Borrower of Assignment” (a required notification to the borrower that their loan may be assigned to HUD in the near future) -A full loan balance history -The most current Occupancy Certificate -A verification that taxes and insurance are current -A copy of the most current payment plan -Proof that the loan was insured by HUD -The First Note & Recorded Mortgage (including applicable assignments) -The final title policy -Any subordination documentation (if applicable) -The Second Note & Recorded Mortgage -The loan application -The HUD-1 Settlement Statement -The appraisal report -The most current flood certificate -A draft of the proposed assignment to HUD (which would be recorded in the land records once the assignment is approved)
Once this packet is uploaded into HERMIT, a claim timeline is opened, which provides the steps to be completed in order to finalize the assignment to HUD. HUD’s servicing contractor completes some of these steps and the loan servicer or sub-servicer will complete others. This timeline is the primary piece of communication between HUD’s contractor and the servicer/sub-servicer and, depending on any special circumstances with a given loan, this process can take from two days up to several months.
Approval is not guaranteed and can be denied even at this late stage of the process. If there’s drama to be found in the assignment to HUD process, it is here. HUD’s servicing contractor reviews the materials thoroughly to make sure everything is in place. During this review period, taxes can become delinquent, or the Occupancy Certificate or hazard insurance can expire. This places the assignment on “hold,” giving the loan servicer time to try to clear up these issues.
Some other uncommon reasons for a “hold” would be name change documents or other paperwork that specifically relate to the condition of that particular loan. If for any reason the packet is determined to be out of compliance or missing anything, or the “hold” cannot be remedied, then the assignment is denied. This isn’t a one-time-only opportunity. The entire HERMIT submission can start over for review if at a later time the “hold” issue is resolved. The reason so much work is done beforehand is that HUD will only pay up to 100 percent of MCA in a claim—and nothing more. If an issue takes a while to fix, it is much better know about it well ahead of time rather than at the end of this process in order to minimize or avoid any losses for the investor.
Everything can be in place and ready to go, and then the last surviving borrower passes away or the loan goes into default for another reason. Either of these makes for a loan that may no longer eligible for assignment.
When the loan is approved for assignment, HUD’s servicing contractor grants a “Claim Type-22 Preliminary Title Approval.” This is the equivalent of seeing the finish line at the end of a long journey. This last step requires overnight delivery of the original first note to HUD. The delivery information is uploaded into HERMIT, and upon receipt, the final timeline step is triggered, allowing the servicer to file the claim with HUD. The process is then officially completed, with HUD taking over the servicing of the loan once the claim is paid to the lender.
The entire process is not easy or simple. It may not qualify as high drama, but this very intense and complicated procedure requires great attention to loan details as well as a broad knowledge of the reverse mortgage product and processes. You need a safe and experienced driver to transport loans for assignment to HUD. As I told my wife, Celink is the John Snow of assignments to HUD for our clients. Jon Snow’s reply? “That’s nice, honey.”
