FHA Single Family Housing Policy Handbook 4000.1, Part III — b. General Loan Servicing Requirements (05/09/2022)

FHA Single Family Housing Policy Handbook 4000.1, Part III — b. General Loan Servicing Requirements (05/09/2022)

b. General Loan Servicing Requirements (05/09/2022) The Lender must have adequate facilities for contacting the Borrower in the event of Default and must otherwise exercise diligence in collecting the amount due. The Lender must have an organized means of identifying, on a monthly basis, the payment status of Delinquent Loans to enable collection personnel to initiate and follow-up on collection activities, and must document its records to reflect its collection activities on Delinquent Loans. Title I Loan holders are responsible for all servicing actions, including the acts of its agents who perform servicing and collection activities. i. Title I Loan Sale (A) Definition A Loan Sale is a transaction in which a Title I Loan holder sells the Loan to another Title I FHA-approved Lender. III. SERVICING AND LOSS MITIGATION C. Title I Insured Programs 1. Title I Property Improvement Loan Program Handbook 4000.1 1535 Last Revised: 11/26/2025 (B) Standard A Lender may sell, assign, or transfer its Title I Loans, but only to a Lender that has been approved by HUD to participate in the Title I program and has an active Title I contract number. The selling Lender relinquishes all rights and obligations under the contract for loan insurance on the effective date of the sale. The selling Lender remains responsible for the Loan’s annual insurance premiums until notice of the sale is received by HUD. The purchasing Lender is the Lender that purchases the Loan and thereby succeeds to all rights and obligations of the selling Lender under the contract for loan insurance. As of the effective date of the sale, the purchasing Lender becomes responsible for outstanding annual insurance premiums, regardless of the date of accrual, and must confirm that the details of the loan sale have been reported accurately. A transfer of Title I Loans between Lenders must be reported to HUD within 31 Days of the effective date of the transfer. Exception for Sale with Recourse Reporting is not required if an insured Loan is transferred with a recourse, guarantee, or repurchase agreement. (C) Required Documentation The selling or purchasing Title I Lender must report a transfer of Loans by submitting form HUD-27030, Title I Transfer of Note Report, to the FOC, Attention: Premiums (Title I Insurance Processing Branch). HUD will accept the completed form HUD-27030 from either the selling Lender or the purchasing Lender as long as the form contains the signatures of authorized officials from both institutions. Transfers of Loans for Title I Property Improvement Loans must be submitted separately from Manufactured Home Loans. The two insurance types cannot be submitted on the same form HUD-27030. The Lender must complete a separate form HUD-27030 for each insurance type being reported. If a large number of Loans are being transferred, a completed form HUD-27030 may be submitted with an attached report or electronic file attachment (such as Excel spreadsheet) that provides the loan level data required by the form. HUD will hold the selling Lender responsible for all related premium charges and will disburse claim payments only to the selling Lender until an appropriately prepared form HUD-27030 is received and processed. III. SERVICING AND LOSS MITIGATION C. Title I Insured Programs 1. Title I Property Improvement Loan Program Handbook 4000.1 1536 Last Revised: 11/26/2025 ii. Earmarking Reserves HUD may transfer a Loan or group of Loans with earmarking which keeps the insurance coverage separate from other loans owned by the purchasing Lender. In other words, the insurance coverage reserves associated with the Loans being transferred remain in a separate account from any loans already held by the purchaser. Once a Loan is earmarked it remains earmarked even if it is subsequently transferred to another Lender. iii. Providing Information to HUD The Lender must respond to verbal or written requests for individual account information, including all servicing information and related data and the entire loan origination file, from HUD staff or from a HUD-approved counseling agency acting with the consent of the Borrower. When HUD staff request information, the Lender must make available legible documents in the format (electronic or hard copy) requested within 24 hours of the request or as otherwise permitted by HUD. iv. Communication with Authorized Third Parties (A) Definition Authorized Third Parties are parties who are not Borrowers on the Loan but who are authorized to communicate with Lenders regarding a Loan. (B) Standard The Lender must comply with all laws, rules, and requirements applicable to third- party access to loan information, including any requirement to provide loan information and arrange for individual consultation to parties authorized by the Borrowers. (C) Required Documentation If communicating with an Authorized Third Party, the Lender must include documentation of the authorization in the servicing binder. v. Prepayment (A) Definitions A Partial Prepayment is a payment of part of the principal amount before the date on which the principal is due. A Prepayment in Full or Payoff is the payment in whole of the principal amount of the loan Note in advance of expiration of the term of the loan Note. III. SERVICING AND LOSS MITIGATION C. Title I Insured Programs 1. Title I Property Improvement Loan Program Handbook 4000.1 1537 Last Revised: 11/26/2025 The Installment Due Date is the first Day of the month, as provided for in the security instrument. (B) Standard The Lender must accept a prepayment of a Loan in whole or in part on any Installment Due Date without penalty to the Borrower. (C) Trustee’s Fee for Satisfactions If specifically provided for in the security instrument, the Lender may charge the Borrower the amount of the trustee’s fee, plus any reasonable and customary fee for payment, or for the execution of a satisfaction, release or trustee’s deed when the debt is paid in full. (D) Recording Fees for Satisfactions The Lender may charge the Borrower a reasonable and customary fee for recording satisfactions in states where recordation is not the responsibility of the Lender. vi. Insurance Coverage Administration (A) Hazard Insurance Lenders may require the Borrower to have hazard insurance. If the Lender requires the Borrower to purchase hazard insurance, the Lender must: • be named as a “Loss Payee” on the hazard insurance policy; and • escrow sufficient funds for payment of the renewal premium. (B) Flood Insurance (1) Standard Flood insurance is required for a secured Loan when the Property is located in an SFHA. Flood insurance must be obtained at any time during the term of the Loan when the Lender determines the secured Property is located in an SFHA. The Lender must ensure that insurance is in force for the life of the Loan or so long as such coverage remains available, unless the area in which the Property is located is no longer designated as an SFHA. If, due to rezoning, a Property securing an FHA-insured Loan becomes located in an SFHA, the Lender must enforce HUD’s flood insurance requirements on coverage amounts and maintenance. III. SERVICING AND LOSS MITIGATION C. Title I Insured Programs 1. Title I Property Improvement Loan Program Handbook 4000.1 1538 Last Revised: 11/26/2025 If the Borrower does not maintain flood insurance as required, the Lender must force place the insurance and may pass on the expense to the Borrower. However, the cost of such insurance may not be included in the calculation of HUD’s claim payment. When a Lender obtains title to a home through repossession, the Lender may obtain and maintain flood insurance if the Property is or will be located in an SFHA identified by FEMA until the sale or disposition of the home. The amount of flood insurance must be no less than the unpaid balance due on the Title I Loan. The Title I Lender must be named as a loss payee. (2) Required Documentation The Lender must include in the case binder a copy of the insurance policy showing the amount of coverage and name of the loss payee. (C) Hazard or Flood Insurance Proceeds Insurance Claims The Lender must take necessary steps to ensure that hazard or flood insurance claims are filed and settled as expeditiously as possible. vii. Annual Insurance Premium and Billing and Remittance (A) Definition Annual Insurance Premiums are charges that are remitted to HUD each year of the loan term. Loan Term, for the purposes of Title I insurance, refers to the term of the insurance coverage, which extends from the Loan’s Disbursement to maturity. (B) Standard The Lender must pay an insurance premium equal to 1 percent of the loan amount, multiplied by the number of years of the loan term. The 1 percent premium is calculated on the original loan amount rather than the declining loan amount. All insurance charges are considered earned when paid. (C) Billing Insurance Premium HUD will issue a billing statement each month to the Lender through FHAC. The billing statement will show the total amount due to HUD for that period. III. SERVICING AND LOSS MITIGATION C. Title I Insured Programs 1. Title I Property Improvement Loan Program Handbook 4000.1 1539 Last Revised: 11/26/2025 (1) Billing Schedule HUD bills a Lender for the initial installment of the insurance charge on the next monthly billing statement after a Lender reports the Loan for insurance. If the loan term is 25 months or less, the Lender will receive one billing statement that reflects the entire insurance charge. For all other loan terms, the initial billing statement will reflect the annual premium for the year, plus any applicable penalty or interest for late premium payments. HUD bills a Lender for the remaining premium installments annually. This billing occurs during the month of the loan disbursement anniversary. The final annual installment may be adjusted to reconcile with the total insurance charge due. A premium is not required and HUD will not bill for a period of 14 Days or less after acknowledgment of the loan report in FHAC. A charge for a full month is assessed for a period of more than 14 Days. If the loan term includes a partial year (e.g., 12 years and 6 months), the annual premium charge for the final partial year is pro-rated based on the number of months remaining (e.g., 0.5 percent for six months). HUD will include the pro- rated annual premium charge for the final partial year with the premium charge billed for the final full year, if the partial year is less than 7 months. (2) Late Reporting A Loan that is submitted for insurance after the first anniversary of the Disbursement Date will not be insured until all past due annual premium charges are paid. (D) Premium Adjustment on Notes Transferred When Loans are transferred between Lenders and the premium charges on the Loans transferred are already paid, any adjustments related to these charges are to be made between the Lenders, with no involvement by HUD. HUD will bill the purchasing Lender for any unpaid insurance charges after being properly notified of the transfer through the submission of form HUD-27030. (E) Remittance of Annual Insurance Premium Lenders must remit the annual insurance premium electronically through Pay.gov. Instructions for accessing Pay.gov can be found in the Title I User Guide, which can be accessed from FHAC under Property Improvement/Manufactured Home. III. SERVICING AND LOSS MITIGATION C. Title I Insured Programs 1. Title I Property Improvement Loan Program Handbook 4000.1 1540 Last Revised: 11/26/2025 The first annual premium payment due will be reflected on the billing statement issued the month after the Lender reports the Loan for insurance in FHAC. (F) Loan Terms Less than or Equal to 25 Months If a loan term is 25 months or less, the Lender will receive only one billing statement that reflects the entire insurance charge. Lenders must pay the entire insurance charge reflected on the billing statement no later than the 25th Day after the date of the billing statement. (G) Loan Terms Greater than 25 Months For loan terms greater than 25 months, the following must occur: • The first billing statement must reflect the initial annual installment due. • The insurance premium must be paid in annual installments. • Payments must be paid by the due date reflected on the billing statement. • Annual installments are due on the 25th Day after the date of billing by HUD. • Second and successive installments are due annually. Lenders must remit the loan insurance premium electronically through Pay.gov. (H) Penalty Charge and Interest on Late Premium Payments Insurance premiums not received from the Lender by the due date will be assessed a penalty charge of 4 percent of the amount of the payment. Insurance premiums received from the Lender more than 30 Days after the due date will also be assessed daily interest at the Treasury Current Value of Funds Rate. However, no penalty charge or daily interest will be assessed if HUD fails to acknowledge receipt of the loan report or fails to bill the Lender for the insurance charges. (I) Refund or Abatement of Insurance Charges HUD does not grant any request for an insurance premium refund or abatement for the following reasons: • The Lender has exhausted its insurance reserve account or is no longer participating in the Title I program. • The loan reporting occurs after the Loan is paid in full by the Borrower. • HUD determines that there was fraud or misrepresentation by a Lender in the loan transaction. Exceptions A refund or abatement of insurance charges is permitted only when the following events occur: III. SERVICING AND LOSS MITIGATION C. Title I Insured Programs 1. Title I Property Improvement Loan Program Handbook 4000.1 1541 Last Revised: 11/26/2025 • If the loan obligation is refinanced into another Title I Loan, HUD will prorate any paid annual installments between the old Loan and the new Loan. HUD will use the date of the refinance to determine the amount pro-rated. • If the loan obligation is prepaid in full, charged off in accordance with IRS regulations, or Defaulted with an insurance claim, HUD does not bill for annual installments after a Lender informs HUD of these events. There will be no partial refund of insurance charges already paid for that portion of the year occurring after the reporting of such events. • If a Loan or portion thereof is ineligible for insurance from its inception due to statutory violations, HUD refunds any insurance charges that have been paid on the ineligible portion. HUD refunds the insurance charges only if HUD denies an insurance claim based upon this ineligibility, or if a Lender reports the ineligibility promptly upon discovery and HUD confirms the ineligibility. If an insurance claim is denied due to ineligibility and a Lender subsequently resubmits the claim with information showing that it was in fact eligible, any refunded amount of the insurance premium plus any accrued insurance charges must be paid by the Lender. (J) Lender Review of Premium Charges The Lender is responsible for reviewing each Title I billing statement to be sure that the amount billed is correct. Since each billing statement reflects the current status of Loans as indicated in HUD’s records, a billing statement could include annual premium charges for Loans where the charge is no longer due. Examples include Loans that were prepaid in full during the preceding year and Loans where the Lender has submitted an insurance claim to HUD, but the claim is not yet noted in HUD’s records. (1) Reconciling the Billing Statement The Lender is responsible for reconciling the billing statement with the Lender’s records to ensure that the billed amount and the loan activity reflected on the statement are accurate. The Lender should check each billing entry to confirm the Loan’s status. If a Loan is no longer active, the Lender may withhold payment (take an “exception”) for the premium charge billed for that Loan. The Lender must provide HUD with data on premium charges withheld when processing payment to HUD. (2) Exception Reporting The billing statement provided in FHAC allows Lenders to take “exceptions” on Loans where they believe they no longer owe premiums (prepaid, claim submitted, other, etc.). III. SERVICING AND LOSS MITIGATION C. Title I Insured Programs 1. Title I Property Improvement Loan Program Handbook 4000.1 1542 Last Revised: 11/26/2025 (3) Exception Reviews HUD reviews reported exceptions and may request the Lender to supply supporting documentation if deemed necessary to verify the validity of an exception. HUD will update its records as appropriate, including termination of insurance coverage where warranted. HUD will re-bill the Lender for the premium charge if the exception is determined to be invalid.

Source: FHA Single Family Housing Policy Handbook 4000.1, Part III — b. General Loan Servicing Requirements (05/09/2022) · source URL · snapshot 8c03836f77f317e1