USDA SFH Guaranteed Loan Program Technical Handbook HB-1-3555 ¶18.2 — Overview

USDA SFH Guaranteed Loan Program Technical Handbook HB-1-3555 ¶18.2 — Overview

18.2 OVERVIEW A goal of the Agency is to provide a borrower the maximum opportunity to remain a successful homeowner and the servicer should approach loan servicing as a preventive as well as a curative action. Prompt counseling and follow-up with a borrower who is late HB-1-3555 (03-09-16) SPECIAL PN 18-2 Revised (04-14-25) PN 637 Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. with a monthly payment, especially the first payment, is key to enhancing the likelihood of success. The servicer should identify any servicing actions that could aid a borrower who is experiencing repayment problems. 18.3 MINIMUM REQUIREMENTS [7 CFR 3555.301] When a borrower’s account becomes past due, the servicer must, at a minimum, take the collection efforts described below. Each delinquency should be treated individually using collection techniques that fit the individual circumstances. Additionally, the Agency recommends making personal contact with a delinquent borrower until the delinquency is cured. Debt collection efforts and actions may be suspended when restricted by applicable laws. A. Initial Contact The servicer must attempt to make verbal or written contact with the borrower on or before the day an account becomes 20 days past due. The servicer must send a letter to the borrower if unable to reach the borrower by telephone. This contact must solicit enough information to evaluate the borrower’s ability to cure the default and to help determine the additional servicing actions to be taken. At a minimum, the servicer must attempt to establish and document the following: x The borrower’s current mailing address and telephone number. x The reason for the default. x Whether the reason is temporary or long-term. x The borrower’s attitude toward the debt. x The borrower’s present income and employment status. x The borrower’s current monthly obligations. x A realistic and satisfactory arrangement for curing the default. B. Notify Credit Repository The servicer must provide an accurate and complete file of the status of mortgages in its Agency-guaranteed loan portfolio to a minimum of three credit repositories each month with the goal of avoiding disputes that could arise from inaccurate or inconsistent reporting. HB-1-3555 (03-09-16) SPECIAL PN 18-3 Revised (04-14-25) PN 637 Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. C. Send Certified Letter to the Borrower Before an account becomes 60 days past due and if there is no payment arrangement in place, the lender must send a certified letter to the borrower requesting an interview for the purpose of resolving the past due account. The letter should emphasize the importance of meeting the debt obligation and explain the negative impact of non- repayment on the borrower’s credit history. The information required at the initial contact should be requested in the certified letter if initial contact was not made successful. D. Inspect the Property On or before the day an account becomes 60 days past due and before initiating a liquidation action, the servicer must assess the physical condition of the property, determine occupancy, and take the necessary steps to preserve and protect the property. At minimum the servicer must document the following.: x Physical Condition and Occupancy – Assess and document the physical condition of the property and determine the occupancy status of the dwelling. This will include identifying any actions essential to protect and preserve the property. x Abandoned property – The servicer will document the servicing file outlining the abandonment determination using indicators such as property and yard condition, posted “for sale” signs, presence of personal property or vehicles, last known mailing address, or absence of a power meter. The servicer will refer the loan for acceleration within 15 days of the date of the inspection report confirming the property was abandoned. Additional guidance regarding management methods and activities of custodial properties can be found in Section 18.7.A of this Chapter. x Inspections – The servicer should inspect the mortgaged property at least monthly to verify continued occupancy and ensure the property is being adequately maintained. Exterior inspections are sufficient to make these determinations. If the inspection shows the property is not being adequately maintained or is vacant or abandoned, an attempt to complete an interior inspection should be performed. Inspection records must be retained in the mortgage file and address at a minimum, the condition of the property, occupancy status, any necessary repairs to protect an abandoned property, the date of inspection, and who performed the inspection. HB-1-3555 (03-09-16) SPECIAL PN 18-4 Revised (04-14-25) PN 637 Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. E. Proceed with Liquidation Once the account becomes 90 days past due and the borrower has been non- responsive or has declined all available foreclosure prevention options, the servicer must initiate liquidation proceedings considering any applicable notice and waiting period under state law. 18.4 DOCUMENTATION REQUIREMENTS AND PENALTIES [7 CFR 3555.301] A. Collection Records The servicer must maintain records of all collection efforts and must make them available upon request by the Agency. These records may either be in the form of servicing logs and/or copies of letters sent to the borrower. The records must indicate the following: x Reason for the default. x Date(s) and content of written notification(s) to the borrower. x Dates and results of personal contacts with the borrower to resolve the debt by telephone and/or in-person. x Dates and documentation of property inspections. x Date liquidation action was initiated. B. Grace Period for Completing Collection Action The servicer is required to take all collection actions within the time frames described in Paragraph 18.3 of this Chapter. However, the Agency may allow a grace period of five business days for completing each required collection action. Thus, no penalty will be assessed if the servicer takes the required action before the end of the grace period. C. Penalties for Failure to Fulfill Collection Obligations If the servicer fails to take the minimum collection efforts in Paragraph 18.3 and experiences a loss on the loan, the loss claim amount will be reduced. The Agency may apply the penalties below for a servicer’s failure to take the required collection actions. These penalties are described in greater detail in Chapter 19 and Appendix 8 of this Handbook and include the grace period offered by the Agency as noted in Paragraph 18.4B above. HB-1-3555 (03-09-16) SPECIAL PN 18-5 Revised (04-14-25) PN 637 Guidance documents lack the force and effect of law, unless expressly authorized by statute or incorporated into a contract. USDA may not cite, use, or rely on any guidance that is not available through their guidance portal, except to establish historical facts. x The claim may be denied if the servicer failed to attempt to make any contact with the borrower before the loan was 65 days past due. x The claim may be denied if the servicer failed to notify the Agency, in accordance with Chapter 17 of this Handbook, when the account was in default. x Accrued interest for the claim will be reduced by 50% if the servicer failed to attempt to make a first contact with the borrower within 25 days past the due date, but within 65 days past the due date. x If the servicer fails to order an inspection of the property within 65 days past the due date, the accrued interest will be reduced by ten percent. x The servicer is required to protect and preserve the property. The loss claim will be reduced by the dollar value of the loss attributable to the servicer’s failure to inspect and secure an abandoned property as documented by an appraisal. SECTION 2: LOSS MITIGATION [7 CFR 3555.301, 3555.303, 3555.304 and 3555.305]

Source: USDA SFH Guaranteed Loan Program Technical Handbook HB-1-3555 ¶18.2 — Overview · source URL · snapshot 0466acd1ea2d17a4