| Outline |
|---|
1. Description of Process
4. Central Due Diligence Facility 5. Coordination with Loan File Locations 7. Imaging Loan Files and Documents 10. Timeline
|
| Exhibits |
|
1-A. Instruction Letter for Field Offices 1-B. Summary Loan Listing for SF#2 1-C. Specifications for the Due Diligence Facility 1-D. Contact List 1-E. Asset Review File Structure |
PROJECT TIMELINE1995 1996 Oct. Nov. Dec. Jan. Feb. Mar. April. | | | | | | | | -------------------------------------
|Data Collection| (10/15-12/5)
The objectives of data collection are to:
The information must be as accurate and current as possible to ensure a fair transaction. FHA has a responsibility to provide full disclosure to buyers (creating a "level playing field") and to avoid potential claims after the sale.
The information is of greatest value when it is all collected at approximately the same time from all sources. This requires establishing clearly defined cut-off dates and procedures for updating data by incorporating information received subsequently.
FHA's single family loan servicing is carried out at a number of locations and, as a result, loan files may be found at the following sites:
HUD Field Offices
The field offices maintain the servicing files for the single family loans for which they have asset management responsibility. The organization of these files will vary by field office, but generally the files will include a collateral file and a servicing file. The collateral file contains all legal documents, including mortgages and notes. The servicing file includes forbearance agreements, and correspondence needed for servicing a loan.
FHA prepares instructions for field office staff which includes the following:
A sample field office letter containing instructions relating to the single family sale is attached as Exhibit 1-A.
HUD Headquarters
The Office of Mortgage Insurance Accounting and Servicing ("MIAS") has responsibility for billing the borrowers and maintaining current servicing information. The actual single family servicing system is operated by MIAS's contractor Electronic Data Systems (EDS).
Other headquarters locations that may have files relevant to the sale include:
3. IDENTIFY LOANS TO BE INCLUDED IN THE SALE
It is important to identify which loans will be included in the sale as soon as possible, so that field offices can be contacted and the collection process started. The director for single family servicing is integral to this process as the criterion has generally been to choose those field offices in immediate need of relief. However, other criteria have and should be included, such as credit reform parameters (time in portfolio, weighted average coupon) and geographic location. The initial summary loan listing, by field office, can be found as Exhibit 1-B. A complete final loan list is included on the enclosed diskette.
4. CENTRAL DUE DILIGENCE FACILITY
Because the files relating to the loans are dispersed, the CT should establish a central facility in the Washington, DC area for organizing the loan files and performing the due diligence procedures. This due diligence facility enhances the due diligence process by promoting greater communication and consistency in the completion of the due diligence and preparation of the asset review files. The loan files from each location listed above are sent to the due diligence facility where they are organized. Exhibit 1-C lists the specifications and criteria for the due diligence facility for the Single Family Sale.
5. COORDINATION WITH LOAN FILE LOCATIONS
To obtain the loan files and documents for loans to be included in a sale, it is necessary to contact the designated person at each location (see Exhibit 1-D for a list of contact persons) to arrange for the files to be transported to the due diligence facility and to address logistical issues. Logistical items that should be discussed include, but are not limited to:
Discussions with the various contact people should be very specific and committed to writing to avoid any misunderstanding which could result in incomplete documentation being sent to the due diligence facility.
The loans being sold may have been originated 5-20 years ago. Accordingly, there is a great deal of information in the loan files.
To avoid excluding any relevant documents, virtually all field materials are sent to the due diligence facility in Washington, DC for review. This process is least disruptive to HUD field offices because the offices do not organize their files in a consistent format. Sending every document also eliminates the need for the substantial professional time that would be required to determine the relevance of each file, document, or piece of correspondence.
All files and documents received at the due diligence facility are organized by FHA case number for each field office. Each loan is assigned a control number (i.e., 001, 002, 003, etc.). The CT organizes the files according to a standard format (see Exhibit 1-E) to facilitate completion of the short form file abstract and preparation of the asset review file. Each section of the asset review file is indexed with a bar code sheet in order for the database of imaged documents to reflect the indexing format. Duplicate documents are moved to the back of the loan files and are not imaged.
7. IMAGING LOAN FILES AND DOCUMENTS
FHA has instituted a document imaging process for its single family mortgage loan sales. Loan files and documents must be imaged efficiently yet completely. As each document is imaged, it is stored in an electronic database. The use of bar coding allows each loan file and the individual tabs within each loan file to be retrieved. The electronic images should be of high quality to allow potential investors the ability to review the images as part of the investor due diligence process. Chapter 2 of this manual includes a discussion of the selection of a document imaging firm and the required scope of services.
The CT should perform a quality control review on the document imaging process to ensure the files are being imaged completely, two-sided originals are being scanned properly, and the document images are legible.
Once the original loan files are imaged, the due diligence contractor puts the files in storage for safekeeping until delivery to the winning bidder(s).
Relevant information is likely to be generated after the initial collection of data. To control the process and clarify what information has been provided to investors throughout the sales process, cut-off dates are established. Information received after each cut-off date is segregated as follows:
With the use of a document imaging process, the CT performs due diligence on the original files. As part of this process, the status of original legal documents such as the note and mortgage is determined. Once the database has been abstracted and asset review files have been prepared (see Chapter 3), the CT transfers the original collateral files to offsite storage for safekeeping. After the bid date, the files are retrieved and sorted according to winning bidder for delivery of the files in accordance with the loan sale agreement. This process is driven by the database used to track files received from the field offices.
| During the planning stage: |
Obtain complete loan listing Determine location of files and documents Contact file location (field offices etc.) |
| Week 1: | Establish central due diligence facility |
| Weeks 2-5: | Transfer copies to central facility Organize loan files |
| Week 6 | Begin imaging loan documents upon completion of short form file abstract and asset review file |
| 2nd and 3rd cut-off dates: | Update database from servicing information |
Exhibit 1-A. Instruction Letter for Field Offices
Exhibit 1-B. Summary Loan Listing for SF#2
Exhibit 1-C. Specifications for the Due Diligence Facility
Exhibit 1-E. Asset Review File Structure
