One of the most frustrating compliance requirements for lenders over the last decade has been the requirement relating to homeownership counseling for delinquent home mortgage borrowers. The requirement itself is neither burdensome nor complex. Its high frustration factor relates directly to its perpetual disappearance and reappearance. Now, it's back, and this time it appears it might be for good.
In the past, the law containing the requirement has always contained a sunset provision which terminated the requirement as of a particular date. On multiple occasions over the last few years, the sunset date has passed and the requirement has expired, but Congress has later "resurrected" it with new legislation and a new sunset date. In some cases, bankers have learned weeks or months later that the requirement had risen again. The last expiration date was September 30, 2000.
Because HUD expressed confidence in the value of the counseling notices and to most lenders the prospect of yet another revival seemed inevitable, wise compliance officers continued to provide the notices even though the requirement had officially expired. Their confidence and foresight was rewarded on November 26, 2001 when H.R. 2620 was enacted into law. Section 205 of that HUD Appropriations Bill repeals the sunset provision and makes lenders once again subject to the homeownership counseling requirement of sending a notice to delinquent borrowers of the availability of homeownership counseling.
Here's a quick reminder of your responsibilities under the law:
Type of loan covered
The requirement pertains to a home loan secured by property that is the principal residence of the homeowner where the home loan is not assisted under 42 U.S.C. 1471 et seq. (which pertains to farm housing and financial assistance by the Secretary of Agriculture);
Notices to Borrowers and Applicants
There are two different circumstances under which a notification of availability of homeownership counseling must be given:
Loan delinquency. When a covered loan has actually been made and the homeowner subsequently fails to pay any amount by the date the amount is due on the loan, a notice must be given to the delinquent homeowner;
Notice to applicants. An applicant for a mortgage is entitled to the notice if:
the applicant is a first-time homebuyer who meets the requirements of 42 U.S.C. 12852(b)(1) ; and
the mortgage involves a principal obligation (including such initial service charges, appraisal, inspection and other fees as the Secretary of HUD shall approve) in excess of 97 percent of the appraised value of the property; and
the mortgage is to be insured pursuant to 12 U.S.C. 1709 (section 203 of the National Housing Act).
If your institution does not make home mortgage loans in excess of 97 percent of the appraised value, you will only need to be concerned about the first category of notification - notification to delinquent borrowers.
Content of the notice
The notice is required to contain three pieces of information. It should:
notify the homeowner or mortgage applicant of the availability of any homeownership counseling offered by the creditor (or proposed creditor). (If you don't offer such counseling, you would omit this part.)
if provided to an eligible mortgage applicant, state that completion of a counseling program is required for insurance under section 203 of the national Housing Act; and
either notify the homeowner or mortgage applicant of the availability of homeownership counseling provided by nonprofit organizations approved by the Secretary of HUD and experienced in the provision of homeownership counseling, or provide the toll-free telephone number offered by HUD through which an eligible homeowner can obtain a list of nonprofit organizations which can provide the counseling.
You may obtain a list of HUD-approved counseling agencies on the Web (see the Informer links page). They are organized by state. If you elect to provide the list of agencies, choose ones that are in the area where the homeowner is located. In the alternative, you may instead provide the toll-free number HUD has established. The current number is 1-800-569-4287.
Timing of notice
The notice must be given to a delinquent homeowner borrower no later than 45 days after the date on which they become delinquent. If, within the 45-day period, the borrower brings the loan current again, no notification is required.
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