By Lisa A. Lee, Esq.

KML Law Group, PC*

USFN Member (NJ, PA)

There is no doubt the pandemic had the effect of highlighting the benefits of face-to-face contact for all of us. Once the ability to be face-to-face with others is taken away, you realize just how important it is to building trust and lasting relationships.

The architects of the HUD default servicing requirements clearly believed in the importance of face-to-face contact long before anyone had ever heard of COVID-19. Servicers of HUD loans have long been subject to the provisions of 24 C.F.R.§203.604, which provide that a mortgagee “must have a face-to-face interview with the mortgagor, or make a reasonable effort to arrange such a meeting before three full monthly installments due on the mortgage are unpaid.” There are several exemptions, including the circumstance where “[t]he mortgaged property is not within 200 miles of the mortgagee, its servicer, or a branch office of either.”  Section 203.604 includes a description of what a “reasonable effort” to arrange such a meeting looks like. Specifically, mortgagees must send one letter to the mortgagor by certified mail and must make at least one trip to see the mortgagor at the mortgaged property, unless the property falls under the 200-mile exemption, or it is known that the mortgagor does not reside at the property.

Due to the public health emergency created by the COVID-19 pandemic, HUD instituted a temporary, partial waiver of the face-to-face contact requirements on March 13, 2020. The stated purpose of the waiver is to ensure the continuation of early default intervention, but with the pandemic constraints on face-to-face contact in mind. The initial waiver period was 12 months, and was extended twice, most recently on December 19, 2022, with a current expiration date of December 31, 2023.

The waiver requires that, in lieu of face-to-face contact, the mortgagee attempt contact with the borrower by alternate means (phone interviews, email, Skype, Zoom, Webex, etc.) in order to determine the borrower’s circumstances, to inform the borrower that credit reporting will continue, that they may qualify for a repayment plan or other assistance, and to provide the names and addresses of other HUD officials to whom communications can be addressed. The waiver is specific that all efforts at contact must be documented using the same protocols in place for face-to-face contact. It is worth noting that the waiver does not apply to mortgages insured under section 248 of the National Housing Act, which generally applies to mortgages on Indian reservation land.

The most recent version of the waiver expands on the reasons HUD considers the waiver necessary and advisable. Of course, the primary reason remains the continuing national emergency due to COVID-19, but also mentions the rising rates of Respiratory Syncytial Virus (RSV), increased rates of the seasonal flu, shortages of staff and resources at servicers and their vendors, and the success of alternate communication means during the pandemic. On this last point, HUD specifically stated that they had “seen the alternative methods of contact provided for in this, and prior, waivers be successful since initially implemented. Servicers have been able to reach defaulted borrowers using these methods as or more successfully than through using face-to-face interviews.” (Emphasis added).

So, what can the industry expect after the expiration of this temporary, partial waiver? It remains to be seen whether HUD will extend the waiver again, or potentially make it permanent, given the apparent success of the use of alternative communication methods. If HUD were to amend the requirement in favor of alternative communication methods, it would seem that the 200-mile exemption would no longer make sense and could also become a thing of the past. There will undoubtedly be more to come on this subject, and USFN will keep you up to date.