Homeownership Counseling Notices

I fully understand why some examiners tell banks to continue to give HUD's delinquent homeownership counseling notices even when it appears the requirement has sunset.

We have been trying to determine whether Congress resurrected the requirement again. One of our colleagues had written repeatedly to HUD, with no results. Last week, however, she wrote to them without saying she was with the banking industry.

Here's her message to them and their reply:

To:
cc:
Subject: Housing Counseling

Hi,
I'm trying to find out if Financial Institutions are still required to give
Housing Counseling/Homeownership Counseling notices to delinquent borrowers.
The date of sunset for the law was Septempber 2000. However, this has been brought back after the original sunset date in the past. I've tried several different methods to get an answer on this. If you have any current
information I would really appreciate any help I can get on this.

-----Original Message-----
From: Art_Green@HUD.GOV [mailto:Art_Green@HUD.GOV]On Behalf Of
HSG-LOSSMIT@HUD.GOV
Sent: Friday, March 09, 2001 7:33 AM
To:
Subject: Re: Housing Counseling

The answer is yes. All mortgages must be sent the 426 brochure "How to
Avoid Foreclosure, which has the 800 number for Counseling Agencies within
that brochure. You can print that brochure from the internet at this
address. click on "How to Avoid
Foreclosure". You may also view HUD/FHA directives on Loss Mitigation on
this same site by clicking on Mortgagee Letters on Loss Mitigation.

If you have any questions you may contact this office at our toll free
telephone number of (888) 297-8685 an operator will connect you with a
Housing Specialist who should be able to assist you.

So, what does that tell us? Not necessarily that the law has been resurrected, but it certainly tells us HUD wants us to continue sending the notices.

Mary Beth -

I was under the impression that we only had to inform the delinquent borrower that counseling is available via a specific toll-free number. This is the first I've heard of a brochure.

In fact, Kirchman's Big Orange Book recommends that our past-due notices read "For homeowner counseling, call 1-800-569-4287"

Can you shed some light?

I'm not sure where they're getting this brochure requirement from.

I just went back and reviewed what I've written over the years about this requirement, starting in 1990. Originally, the requirement was that when a loan secured by a 1 to 4 family dwelling became delinquent due to a reduction in income of the homeowner, the homeowner was required to be notified by the lender (or the entity servicing the loan) of the availability of homeownership counseling. Due to problems in ascertaining the cause of the delinquency, HUD suggests that you may want to furnish the notice in any case where this type of loan becomes delinquent. And, if the loan is brought current and then becomes delinquent again, you must furnish the notice again.

Then, in 1993, they expanded the scope of the requirement. In addition to notices of availability of homeownership counseling being provided to delinquent homeowner-borrowers, the law was changed to require that the notice be given to eligible applicants for home loans. The law states that an applicant for a mortgage is considered "eligible" if the applicant is:

-- a first-time homebuyer;
who meets the requirements of section 303(b)(1) of the Cranston-Gonzalez National Affordable Housing Act; and
-- the mortgage involves a principal obligation (including such initial service charges, appraisal, inspection, and other fees as HUD shall approve) in excess of 97 percent of the appraised value of the property; and
-- is to be insured under section 203 of the National Housing Act.

(With that high LTV ratio, this wouldn't appear to cover a large number of loans.)

In terms of delinquencies, the notice was to be provided within 45 days after the initial loan default and the lender was required to wait a reasonable period of time after sending the notice before instituting foreclosure proceedings. Since the purpose of the notice is to encourage and enable the debtor to obtain homeownership counseling that might aid him in remedying the delinquency, time should be allowed for this process to take place before foreclosure is filed.

HUD has never issued a "form" to be used for the notice, to my knowledge, and this brochure is something new.

The BIG questions now are:
-- was the legal basis for the requirement really extended, or is HUD simply hoping lenders will voluntarily continue to give the notice;
-- if it was extended by Congress, what are the guidelines?
-- does the brochure have to be provided? What is the timing? Is it the same?
-- Is the limited group of applicants still covered by the notice requirement (and not just delinquent borrowers?)

It's difficult to comply with something when you can't obtain adequate guidance about what constitutes compliance!

Well Mary - that's because HUD is driving this whole thing. And we all know what HUD spelled backwards means....

Posted by Thomas Sall on a similar thread on TMP.

Following is an e-mail alert from the FDIC's Chicago Regional Office regarding homeownership counseling

Bulletin Number: CHIRO-05-2001
Homeownership Counseling
>
There have been a lot of questions lately regarding the continuation of homeownership counseling provisions of the Housing and Urban Development Act of 1968. The initial provisions expired in September 1994, but were subsequently extended several times through September 30, 2000. The homeownership counseling provisions were not extended last fall; therefore, we believe there is no longer an obligation to provide notices to delinquent home mortgage borrowers.

------------------
Andy Zavoina
Opinions stated are not necessarily that of my employer.

My bet is on the FHA program. The general requirement has sunsetted, but HUD may have the ability to keep parts of the requirements alive for FHA loans. That appears to be implied in the HUD response.

In any event, it is always a good idea to let customers know where and how they can get help. HUD does still maintain that toll-free number. There is no pain in using it.

I don't have a problem with notifying CONSUMERS who have a loan secured by their home. We include the counseling notice on the back of our Equity Line statements, and the notices are sent out on our Equity Loan accounts when they fall behind in payments.

The area that was giving me fits, though, was for BUSINESS loans where we may have taken a lien on a consumer's residence either as one of the pieces of collateral on a loan OR to secure a guaranty. Tracking those loans, because of the multiple collateral tracking, etc., was turning out to be a nightmare.

And HUD couldn't really provide any distinction to say that business loans were exempt from the counseling notice.

Today I received the March 2001 executive alert from Kirchman, that says, in part:

"Congress has again raised it from the dead. It is reborn as a rider to the most recent federal budget legislation, and is next scheduled to expire in Sept. 2005."

Clearly, the budget will have to pass with this still attached - can anyone confirm or deny?

I was told by two sources that HUD has had a continuation of the counseling notice requirement extended. It is supposedly in a 7K page omnibus budget bill and can't readily be found.

But, at the ABA Conference last week I spoke with a senior FDIC examiner who spoke with authority when he told me it was in the original bill, but was apparently removed in conference committee because they did not see it in the final bill. They looked.

My advice is, if you are doing it, HUD is still funding for it so it is a service to your customers. I'd continue to list the 800 number. It would cost you more to delete the text message. If you are not doing it, short of a specific cite requiring it or the desire to provide this avenue for your customers, I wouldn't start.

------------------
Andy Zavoina
Opinions stated are not necessarily that of my employer.

HUD has the biggest bootstraps in the government business and they keep pulling their programs up that way. I spoke with the same senior FDIC examiner who said the language was dropped. However, I agree with Andy that it would be prudent -- and good service -- to help customers by letting them know where and how to get counseling. Whether required or not, giving customers that kind of service never hurts.

I am catching up on this again and noticed that we lost track of one of the questions in this thread --- or did I miss the answer? Mary Beth (Post 1) shared her HUD memo referencing a phone number (888) 297-8685 and B. Jonker (Post 2) commented on the Kirchman recommendation for phone number (800) 569-4287. I tried the 800 Kirchman number this year and it is still working; but I wonder if HUD/examiners will cite us for using the wrong number. Any insight?

------------------
Opinions expressed are not necessarily those of my employer.

The 888 number does not go to the counseling service. It was referenced for additional service pertaining to the question asked. The 800 number goes to counseling. That would be the correct number.

In any case, based on what we know there is nothing they could cite you for since we know of no requirement.

------------------
Andy Zavoina
Opinions stated are not necessarily that of my employer.

[This message has been edited by Andy Z (edited 06-26-2001).]