HUD presented the material in a very welcoming environment that fostered open and cooperative dialogue. As a result, the industry received many answers to the questions posed.
Several follow up action items resulted from this meeting. HUD plans to host follow up joint meetings and conference calls throughout the rest of the transition to MCM and ML 2010-18 and FSM and AM implementation. In addition, HUD will be working to release an updated FAQ addressing the questions submitted by the industry by June 30th. Here are the highlights from that meeting:
Which Guidelines To Follow: If work was started prior to 7/13, follow through under the old guidelines, 08-31, however as of 7/13 new conveyances must meet 10-18 conveyance condition standards, i.e. “broom swept condition”. Effective immediately, and in order to ramp up, MCB will accept and approve reasonable bids to remove interior debris up to the effective date of 10-18 when the new requirement is effective. This should only be a one bid requirement but this will be clarified in the FAQ’s early next week. There is no requirement that the industry must institute this process as “broom swept condition” is not required until 7/13.
The industry pointed out the concern that the length of the foreclosure process should be considered. For instance if P&P is started today under 08-31 and the F/C takes 12 months is it confirmed that all P&P (excepting conveyance condition) is to be performed under 08-31 procedures and cost allowables. This will be clarified in the FAQ’s.
Cost Estimator Note/Bid Approvals: It will be customized to HUD however the new contract award and effective operational date is targeted for 9/1. In the interim period MCB has pledged to be reasonable and will not “nickel and dime” bid submissions.
The industry will be free to contract with the CE provider and obtain a license for usage. HUD will establish a link to the provider once the contract is awarded.
The use of a bid cost estimator program is not required by the servicers, but encouraged by HUD to support the costs claimed for reimbursement since over allowable requests and approvals will be fewer.
MSB Presentation & Related Preservation Issues: After a general overview from MSB on their product, specific HUD preservation discussion focused on several issues. The primary one surrounded the example of grass cuts; the new Exhibit B prices, future CE prices (down to zip codes) and the interim from 7/13 until at minimum 9/1 when the new contractor would be live with the CE. This resulted in HUD indicating that they may have to go to a full price schedule until the CE is in place and fully operational. This includes re-examining some pricing that in 10-18 is lower than 08-31. HUD arrived at the new prices by “manual” research and calculation.
The CE, when in place, will allow for differentiation, and eventual elimination of, a cost schedule. The ability to extract the CE cost from the tool will allow servicer’s & vendors to pull and print the CE quote and place it in the audit file to support expenses above any line item published cost or a cost in general.
Conveyance Condition: The new definition of conveyance condition including full interior debris removal and broom swept condition will be required for all properties conveying on or after July 13th, 2010. HUD issued a directive to MCB to begin accepting and approving bids to perform this function effective 6.24.2010 in preparation for the properties scheduled to convey on or after July 13th.
HUD is still reviewing how to implement the cost schedule for work completed on or after July 13th and will issue clarification through the FAQ. As noted in the call if the cost schedule is based on the default date, in certain states (Ohio and others), we will be dealing with two cost schedules for years.
Allowable Cost Per Property: Bids do not need to be submitted if the line item amount exceeds the Exhibit B cost if the $ 2,500 maximum will not be exceeded but verifiable and auditable documentation must be submitted with the claim.
The One Time Major Repair Item was given a threshold of $ 1,500.00. Any singular event with a cost to cure exceeding this amount must be submitted to MCB. The approved amount is not included in the $ 2,500 routine maintenance cap. This could encompass roofs, demolitions, pools, etc. It was noted that an “event” such as a storm that damages both a roof and other parts of the structure (interior water damages, blown siding, etc.) must be bid in its entirety a single time (i.e. all repairs required due to the event). NOTE – Items under the $ 1,500 threshold (ex-pool securing/covering/treatment for $ 1,490) is included in the $ 2,500 cap.
Routine preservation was defined with the usual items however inspections were included. In addition P&P eviction costs were also quoted as included. Both raised concerns with the industry; especially the eviction costs that can be significant. Clarification will be provided in the FAQ’s.
Exterior Debris & Second Bids: One bid only after 7/13 and will clarify with claims concerning now until 7/13. Clarification will be provided concerning work begun under 08-31 that extends beyond 7/13 and whether two bids will be required if subsequent work (as previously advised) will continue under 08-31.
Evictions & Personal Property Storage: Clarification will be provided in FAQ’s concerning storage of P/P for 30 days where required by local jurisdictions. MCB acknowledged that under the current 08-31 where interior “broom swept” is not required, that they will often store “personals” on-site (garages).
Inspections & Inspection Costs: Although 10-18 does not differentiate between interior and exterior inspections it is pretty clear that under the mortgagee responsibilities it is prudent and imperative that post-secured properties involve interior inspections. HUD recognizes the circumstances surrounding bankruptcy and stressed documentation of the notes and servicing file. Specific concerns about the State of Illinois were addressed by advising that the servicers F/C attorney supply a cover letter for the file.
The juxtaposition from 08-31 was raised as a concern in light of interior inspections; previously the initial cost was $ 20 with subsequent ones at $ 30. 10-18 has the initial at $ 30 and subsequent ones at $ 20. HUD will look into and respond.
Securing Timeliness: The switch from specified time frames to securing “promptly” was discussed as a very real concern on interpretation; specifically where the process of notification to the borrower is being followed prior to the securing. This would skew the definition of promptly in an unfavorable light to the servicer. HUD is going to examine and clarify this issue.
For Sale properties were discussed surrounding the “promptly” designation and the guidance afforded was that is you do not make contact with the listed Realtor within 24 hours securing should be pursued.
Claim Issues: The question of the claim validity of work bid after the fact and approved was raised and the fact that there had been prior claim issues and/or audit issues. The suggestion was made to remove the language “prior approval”.
HUD representatives stated that auditors should not only be using the ML as the audit documentation basis but also must use the FAQ’s. The industry responded that that does not happen and HUD will look into “marrying” the two together going forward.
NOTE – Due to the fact that several of the issues and concerns raised in this meeting that OKC HUD will be in contact with the Claims Group in DC (Sarah Martin) the week of the 28th in order to work out clarifications. Following that they promised an industry meeting to also include contractors/vendors.
Boarding: The concern was raised on how to adequately define/document a high vandalism area circumstance. HUD will look into reinstating pre-approved areas.
OSB is not an acceptable boarding product.
Extension Requests: HUD expects that they will be forwarded 5 business days prior to the due date of the conveyance however they recognize that emergency situations do arise and will be handled on a case-by-case basis. It was noted that there is a discrepancy between the two major time guidelines. One cites prior to the 25th day of the conveyance deadline which is in calendar days while the ML cites business days.
Tarping: Although tarped properties will no longer be accepted under 10-18, the costs associated with an interim tarp to prevent further damage pending an insurance claim outcome and subsequent repair will be reimbursable.
Pools: Where no local law or code applies to securing the servicers need to use their judgment on whether to secure and how to secure.
Grass Cuts: No bid is required for out of season cuts if the work is completed within the $ 2,500 cap and the mortgagee can supply adequate documentation to support the expense.
Utilities : The focal issue was discontinuance and placing into HUD’s (or MCB’s) name. HUD reiterated that the servicer is only responsible until conveyance and that the MCM/M&M/FSM is responsible for contacting the utility suppliers and making sure of the transfer of responsibility. It was agreed that a copy of the Notice to the supplier from the servicer in the file was sufficient documentation to cover the servicer liability. It was also confirmed that the final utility bill paid by the servicer, even if a “cycle bill extending beyond the conveyance date should be reimbursed.
Re-securing Properties: The question of whether a bid was required to resecure a property was needed under 10-18 and HUD will provide clarification.
The absence of regional variations for year round grass cuts, more frequent inspections in high vandal areas, winterizing prior to October 1st, etc. were discussed with HUD. HUD stated on several occasions that the intent of the ML is to give servicers the ability to do whatever work is necessary to preserve and protect without having to ask for approval. HUD recognizes the need to maintain the grass year round in southern states and to inspect more frequently in high vandal areas and believe the guidelines allow for those scenarios. These items and supporting documentation will be discussed in a joint meeting with HUD's Claims group and HUD's auditors in the coming weeks. The industry will be invited to those meetings and discussions.
Thanks to our committee members in attendance for their updates.