Attachment_A_Permance_Work_Statment.pdf

Attachment A

HECM PWS Version 1 June 16, 2014 Page 1

SECTION C – PERFORMANCE WORK STATEMENT

C-1 GENERAL INFORMATION

1.1 General

The U.S. Department of Housing and Urban Development (HUD) is to provide a business solution for its Home Equity Conversion Mortgage (HECM) insurance program. Services include:

The contractor shall provide a Business Service Provider via web-based, end-to-end business service to manage HUD’s HECM portfolio; to meet the demand for HECM loans; and to address administering the HECM insurance program by HUD; by FHA-approved HECM investors, originators, and servicers; by HECM mortgage-backed security (HBMS) issuers, by Government-Sponsored Enterprises (GSEs); by HUD’s Loan Servicing Contractor; by third party service providers; by HUD-approved contractors; and by other HUD-approved groups.

The contractor shall provide HECM business services for all active and historical loan level records; of ready access to data for financial, budgetary, user-generated reporting, and business intelligence and management reporting tools; of automated reconciliation support between loan balances and posted transactions between its HECM business services and FHA’s business partners’ automated and/or manual HECM records; and of the ability to quickly adapt to legislative, regulatory, and other administrative changes in the policies and procedures based on industry best practices for financial management and reporting, Federal government and Credit Program accounting, auditing, state-of-the-art information technology, security standards, and project management.

The contractor shall provide staffing for the HECM business services Help Desk to address operational and technical issues related to delivery, implementation, operation, servicing, and validation of the HECM portfolio and to provide automated reconciliation support of all loan balances and posted transactions between its HECM business services, HUD, and FHA’s business partners (HUD Loan Servicing Contractor; FHA-approved HECM originators, servicers, and investors; HBMS issuers, GNMA and GSEs).

The contractor shall provide training of HUD Headquarters, Albany Financial Operations Center, NSC, and HOC staff; HUD counselors and Housing Counseling agencies; HECM originators, servicers, and investors; and HUD’s Loan Servicing Contractor staff on HECM business services.

1.2 Background

The purpose of the HECM program is to enable eligible homeowners (age 62 and above) to convert some of their accumulated home equity into cash to meet their special needs without requiring repayment of the loan for as long as the borrower resides in the home. HUD’s HECM product has become the dominant reverse mortgage product in the US market.

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Funds from the HECM loan are distributed to the borrower either in a lump sum or in the form of a monthly payment. Funds can also remain in a line of credit. The borrower can choose to combine these payment options or can change payment options at any time for a fee subject to drawable equity. HECM borrowers must repay the HECM loan when they no longer occupy the home as their principal residence. At that time, the HECM loan must either be refinanced into a traditional forward mortgage loan or the property can be sold and the proceeds then used to pay off the HECM loan. Any remaining funds will go to the borrower or to their estate.

FHA provides mortgage insurance to an FHA-approved HECM mortgagee protecting them against losses resulting from non-repayment in full of the loans and making mortgagees more willing to make these loans. Non-repayment of a HECM loan would typically occur if the amount of the debt exceeds the net proceeds from the sale of the property when the loan becomes due and payable. If a loss is the result of non-repayment, the servicer files a claim with HUD for insurance benefits.

One feature that distinguishes the FHA’s HECM product from conventional reverse mortgage products is an option that the servicer may assign the loan to HUD when the total loan balance grows to equal 98 percent or more of the loan’s maximum claim amount (MCA). HUD offers this option (1) to increase the liquidity of these loans that have no stated term to maturity and (2) to provide mortgagees with full insurance coverage from losses due to non-repayment. When HUD accepts assignment of a HECM loan, HUD assumes all responsibilities for servicing the loan until final disposition. HUD insures three types of HECM transactions – Traditional, Refinance, and Purchase.

The current HECM portfolio is managed via web-based service provided by the Home Equity Reverse Mortgage Information Technology (HERMIT) system. HERMIT is composed of two Commercial-off-the-Shelf (COTS) software packages that were modified to include additional HUD/FHA HECM business rules and functionality. Accordingly, HUD has only restricted or limited rights to the base proprietary HERMIT software. However, HUD has unlimited rights to all enhancements made to the software during the performance of the contract.

1.2.1 HECM Lifecycle

The following is a high-level overview of the HECM life cycle.

A. The borrower receives counseling from a HUD-approved housing counseling agency.

The borrower need not have contacted a lender to receive counseling.

B. Borrower eligibility is determined by verifying the age of the borrower; by verifying the results of the financial assessment; by reviewing title evidence and the existing indebtedness on the property; and by evaluation the collateral.

C. The Originator requests an FHA case number via the FHA Connection according to the type of HECM transaction. The Originator then orders and records details from the appraisal and validates acceptance of the HECM collateral.

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D. For the purpose of estimating the borrower's principal limit before closing, the Originator uses the indices in effect at the time the initial loan application is signed by the borrower.

Based on this figure, the borrower chooses a payment plan.

E. On the date of closing, the note interest rate and expected (ten-year) interest rate are finalized. The loan is closed. The Originator chooses the assignment option for recapturing the mortgage proceeds in the event of non-repayment. The Originator must also remit the initial MIP (IMIP) electronically to HUD or its agent.

F. The Borrower executes the security instrument and signs the loan agreement.

G. Disbursement of loan proceeds to the borrower may begin after the three-day right of rescission period expires, if applicable to the transaction.

H. After closing, there are disbursement restrictions during the initial 12-month period based on the financial assessment and mandatory set-asides for taxes and insurance.

I. The Originator completes the HECM Insurance Application to issue an electronic

Mortgage Insurance Certificate (MIC) via the FHA Connection.

J. When applicable within 60 days of the closing date, the Originator submits the case binder to the local HUD Home Ownership Center (HOC) for review and approval.

K. If the case binder is not approved, the Originator receives an electronic Notice of Return

(NOR). The Originator must correct any deficiencies noted by the HOC prior to receiving the electronic MIC.

L. Issuance of the electronic MIC completes the endorsement process.

M. The Servicers adds the monthly MIP (MMIP) to the outstanding loan balance and remits the MMIP to HUD, or its agent. The MMIP accrues daily on the outstanding balance of the loan at an annual rate equivalent to one and a quarter percent (1.25% or .0125).

N. Depending on the payment type, the Net Principal Limit (NPL) accrues daily at an annual rate equivalent to one half of a percent (.5% or .005).

O. When the indebtedness on the HECM loan equals 98% of the MCA, or if a request for a line of credit draw will cause the outstanding balance to exceed 100% of the MCA, and any time thereafter, Mortgagees may assign the HECM loan to HUD and file a claim for no greater than the MCA.

P. When the HECM loan becomes due and payable, the borrower or his/her estate will pay an amount equal to the lesser of the mortgage balance or the sales proceeds, if the property is sold by the borrower or his/her estate for at least 95% of the fair market value of the property.

Q. If the proceeds from the sale of the property are not sufficient to pay the outstanding HECM balance, the Servicer may not assigned the HECM loan and may not submit a claim for insurance benefits.

1.2.2 HECM Insurance-In-Force Portfolio

HECM loan origination functions are done by FHA-approved HECM originators and servicers using the HECM Insurance Application screens in the FHA Connection (FHAC). Once a HECM loan is endorsed, pertinent data is sent via an automated interface from the Computerized Homes Underwriting Management System (CHUMS) to the Contractor’s SaaS (Software as a Service)/ITaaS (Information Technology as a Service).

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Once endorsed, a HECM loan is insured retroactively to the closing date and becomes part of HUD’s HECM Insurance-In-Force (IIF) portfolio.

HECM Loans Pre-Endorsement

The primary responsibility for HECM loan underwriting and servicing rests with FHA-approved originators and lenders and FHA’s Home Ownership Center (HOC) staff, who use FHA’s FHAC and CHUMS systems. The Contractor’s SaaS/ITaaS will:

Record initial insurance application information from CHUMS along with subsequent updates and changes

Record receipt of the IMIP and provide that information to CHUMS Record endorsements from CHUMS along with updates and changes to endorsed case information

HECM-Endorsed Loans

The primary responsibility for HECM-Endorsed loan servicing rests with the FHA-approved HECM lenders, servicers, and investors who will use the Contractor’s SaaS/ITaaS to handle the following Lender Servicing functions:

Certifies Occupancy Disburses Monthly Draws (Scheduled/Unscheduled) Tracks Disbursement of Drawable Equity Monitors Annual Property Tax and Homeowner’s Insurance Premium Payments Monitors Events that could trigger Due and Payable status Initiates Termination of Mortgage Insurance Exercises Assignment Option

The National Servicing Center (NSC) has a contract in place to receive and provide decisions on requests from servicers on HECM-Endorsed loans. The NSC contractor acts on behalf of HUD in providing decisions to servicing activities requested by HECM servicers.

The NSC contractor will use the Contractor’s SaaS/ITaaS to handle the following Lender Servicing functions:

Certificate of Indebtedness (COI) Consent of Lienholder Due & Payable with HUD approval Extension – Claim filing Extension – Deed in Lieu Extension – Appraisal Extension – Repairs Extension – Request to Delay Foreclosure Investor Short Sales Partial Release Preservation & Protection Request for HUD Advance (Assignment)

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Substitution of Collateral Subordination Zero Balance Payoff Request Release of Mortgage – Second Mortgage

The Contractor’s SaaS/ITaaS shall also handle Claim Processing functions:

Demand Assignment Foreclosure/Deed-In-Lieu Optional Assignment Mortgagor’s Sale Supplemental Claim Over-Claimed Amounts Received HECM Claim Payment Notification Post-Claim Reviews

HECM-Assigned Notes

A HECM-Endorsed loan becomes a part of the HECM-Assigned Note portfolio in one of the following two conditions:

If the HECM servicer fails to make the required payments to the homeowner, a demand assignment may be requested and HUD would advance monies under the subordinate mortgage which was executed and recorded in HUD’s name and the HECM-Endorsed loan is assigned to HUD.

When a HECM-endorsed loan reaches a specific threshold (currently 98% of the Maximum Claim Amount) and the loan is in good standing, the FHA-approved HECM lender may elect to assign the loan to HUD. HUD then continues loan servicing for the life of the loan. Prior to accepting the assignment, HUD must ensure that the lender has provided clear title from the lender to HUD.

HUD’s Loan Servicing Contractor is responsible for the full servicing of the HECM-Assigned Notes portfolio from assignment to pay-off or conveyance. Following loan assignment, monthly payments are made by HUD’s Loan Servicing Contractor (LSC) to the borrower. HUD’s Loan Servicing Contractor is responsible for monitoring the status of tax, hazard and flood insurance payments; certifying annual occupancy; and initiating foreclosure or deed-in-lieu of the loan upon the death or non-compliance of the borrower.

A HECM-Assigned Note may undergo the following sequence of events:

Assignment HUD LSC Servicing

Annual Occupancy Certification Unscheduled Requests for Funds Responses to Correspondence Payment Plan Modification Payoff Requests

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Insurance Loss Draft Decision Not to Repair

Release Approvals Default Servicing for HECM-Assigned Notes

Repayment Events Death of Mortgagor Property Charge Issues Repayment Plans for Property Charge Defaults Title Transfer Property Condition Occupancy

Property Inspection Custodial Care HUD Counseling Referral Due and Payable

Repayment Status Loss Mitigation Options

Mortgagor/Family Sale Deed-In-Lieu Short Sale

Loss Mitigation – Pre-Foreclosure Foreclosure Recommendation Notice of Intent and Referral to Foreclosure Non-judicial Foreclosures Department of Justice Foreclosures Foreclosure Sales Third-Party Sales Conveyances Repurchases Notice to Vacate Evictions

The Contractor’s SaaS/ITaaS shall provide via web-based, service for all active and terminated HECM-Endorsed loans and HECM-Assigned notes.

1.2.3 HECM User Groups and Transactions

As of December 2013, there were approximately 2,600 authorized users with 130 distinct lender, servicer, and investor groups.

HECM users fall into the following categories:

Servicers Originators Investors HUD Single Family Insurance Operations staff

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HUD Financial Operations Center (Claims) staff HUD Office of Single Family Housing staff o HUD Office of Housing Counseling staff o HUD National Servicing Center (NSC) staff o HUD Loan Servicing Contractor staff o Home Ownership Center staff

HUD Office of Evaluation (Reporting) staff HUD Accounting staff HUD-approved contractors

The Help Desk currently receives an average of 2,000 inbound inquiries monthly and the average monthly new service ticket volume is 800. The Government anticipates that the BSP’s Help Desk will receive a higher than average volume of calls during the initial delivery of and training on the Contractor’s business service.

The average number of electronic data interchanges (EDI) and/or B2G batch files between the various interfaces is 600 per month. Data files can consists of a very few transactions to transactions ranging in the hundreds of thousands.

1.3 Objectives

The objective of this requirement is to obtain contractor support services to provide HUD cost-effective via web-based end-to-end mortgage loan services to support its HECM Insurance Program. By obtaining these services, this will assist HUD in achieving its goals of:

Strengthening the Nation’s Housing Market to Bolster the Economy and Protect Consumers (Strategic Goal 1) o Protecting and educating consumers when they buy, refinance, or rent a home o Creating financially sustainable homeownership opportunities o Establishing an accountable and sustainable housing finance system

Utilizing Housing as a Platform for Improving Quality of Life (Strategic Goal 3) o Utilizing HUD assistance to increase economic security and self-sufficiency o Utilizing HUD assistance to improve housing stability through supportive services for vulnerable populations, including the elderly Building Inclusive and Sustainable Communities Free From Discrimination (Strategic

Goal 4) o Ensuring open, diverse, and equitable communities

1.4 Constraints

The Contractor shall adhere to all rules, regulations, laws, standards, and conventions identified by HUD and the Federal Government (e.g., Government Accountability Office, Consumer Financial Protection Bureau, Treasury) unless specifically exempted or superseded by subsequent Federal regulation (See PWS paragraph 2.3).

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1.5 Description of Services

The Contractor shall provide the following services:

1.5.1 The Contractor shall deliver via web-based, end-to-end mortgage loan business services to manage HUD’s HECM portfolio that meets the demand for HECM loans and addresses the complexity of administering the HECM insurance program by HUD; by FHA-approved HECM investors, lenders, and servicers; by HECM mortgage-backed security (HBMS) issuers; by Government-Sponsored Enterprises (GSEs); by HUD’s Loan Servicing Contractor; by third party service providers; by HUD-approved contractors; and by other HUD-approved groups.

1.5.2 The Contractor shall provide and maintain accurate HECM business services for all active and historical loan level records; provide FHA management with ready access to data for financial, budgetary, and user-generated reporting and provide business intelligence and management reporting tools; provide automated reconciliation support between loan balances and posted transactions between its HECM business services and FHA’s business partners’ automated and/or manual HECM records; and provide the ability to quickly adapt to legislative, regulatory, and other administrative changes in the policies and procedures based on industry best practices for financial management and reporting, Federal government and Credit Program accounting, auditing, state-of-the-art information technology, security standards, and project management.

1.5.3 The Contractor shall provide and staff a HECM business services Help Desk to address operational and technical issues related to delivery, implementation, operation, servicing, and validation of the HECM portfolio and to provide automated reconciliation support of all loan balances and posted transactions between its HECM business services, HUD, and FHA’s business partners (HUD Loan Servicing Contractor; FHA-approved HECM lenders, servicers, and investors; GNMA and GSEs).

1.5.4 The Contractor shall provide and train HUD Headquarters, Albany Financial Operations Center, NSC, Office of Housing Counseling, and HOC staff; HECM servicers, lenders, and investors; and HUD Loan Servicing Contractor staff on HECM business services.

1.6 General Information

1.6.1 Non-Personal Services

The Government will neither supervise Contractor employees nor control the method by which the Contractor performs the required tasks. Under no circumstances will the Government assign tasks to, or prepare work schedules for, individual Contractor employees. It shall be the responsibility of the Contractor to manage its employees and to guard against any actions that are of the nature of personal services, or give the perception of personal services. If the Contractor

HECM PWS Version 1 June 16, 2014 Page 9 feels any actions constitute – or are perceived to constitute personal services – it shall be the Contractor’s responsibility to notify the Contracting Officer immediately. These services shall not be used to perform work of a policy, decision making or management nature, i.e. inherently Government functions. All decisions relative to programs supported by the Contactor shall be the sole responsibility of the Government.

1.6.2 Period of Performance

The Period of Performance shall be for a 12 month base period and four 12-month option periods.

1.6.3 Place of Performance

The services shall be performed at the contractor’s facility.

1.6.4 Special Qualifications

The Contractor’s staff shall possess professional knowledge of project management; of financial transactions; of Federal government and Credit Program and private accounting and auditing standards; of financial analysis and business intelligence methods, practices, and software; of web-based applications; of Federal information technology security standards; and of mortgage lending to include loan application processing, borrower counseling, property analysis, mortgage credit analysis, calculation and payment of mortgage insurance premiums, loan closing and endorsement, post-endorsement loan administration and servicing, mortgage-backed securitization, assignment, and property disposition options.

1.6.5 Post Award/Kickoff Conference

The Contractor shall attend post award conference convened by the contracting officer within 10 business days of contract award. The Contracting Officer will notify the Contractor of the specific date, location, and agenda within 5 business days after contract award.

1.6.6 Status Meetings

The Government Technical Representative (GTR) and the Government Technical Monitor (GTM) other Government personnel, as appropriate, may meet periodically with the Contractor to review Contractor performance, requirement status, etc. At these meetings, the GTM/GTR will apprise the Contractor of how the Government views the Contractor’s performance or progress of the requirement. The Contractor shall apprise the Government of problems, if any, being experienced. Appropriate action shall be taken to resolve outstanding issues. Post award conference and subsequent meetings may be held via teleconference.

1.6.7 Contractor Travel

The Contractor shall coordinate with and receive Government authorization from the GTR for all travel. Reimbursement of travel costs will be in accordance with the Federal Travel Regulation

HECM PWS Version 1 June 16, 2014 Page 10 in accordance with FAR 31.205-46. The Contractor shall travel using the lower cost mode transportation commensurate with the mission requirements. When necessary to use air travel, the Contractor shall use the tourist class, economy class or similar lodging accommodations to the extent they are available and commensurate with the mission requirements. HUD will not reimburse Contractor’s local travel.

1.6.8 Confidentiality

The Contractor shall ensure that none of its employees or associates disclose nor disseminate any information relating to the services in this PWS to any person not entitled to receive it. Failure to safeguard any sensitive information that may come to the Contractor or any person under his/her control in connection with work set forth in this PWS may subject the Contractor or its agents or employees to criminal liability or termination of the contract.

1.7 Transition Period

Start Up- Transition-In

The Contractor shall provide a Transition-In Plan to be included in their submission of proposal.

The plan shall provide a description of the transition activities to be carried out and a timeline for the implementation and completion of all transition-in activities. The Contracting Officer may provide the incumbent with specific detailed for transfer of the on-going contract activities as required to facilitate a smooth transition.

Transition-Out

The Contractor shall provide the Transition-Out Plan no later than 120 days before contract expiration. Upon expiration of the contract, HUD will retain ownership of all data rights, training material and books and any other pertinent information.

C-2 DEFINITIONS, ACRONYMS, APPLICABLE DOCUMENTS/PUBLICATIONS

2.1 Definitions

The following definitions are provided to assist the Contractor.

Acceptable Quality Level (AQL) Contractor’s performance level required by the Government.

This is also known as the Performance Standard.

Acceptable Index Options Valid options on FHA insured HECM loans are 1) the Constant Maturity Treasury (CMT) index (weekly average yield of U.S. Treasury securities, adjusted to a constant maturity of one year); or 2) the 1-year London Interbank Offered Rate (LIBOR).

Activity Type A field attribute used by the FHA Subsidiary Ledger system (FHA SL) to identify the accounting transaction by operating area and type of accounting event.

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ADP Code Refers to the Automated Data Processing codes assigned by HUD/FHA to specific authorizing legislation in the National Housing Act.

Attribute A qualifier or characteristic used to further clarify or to create subcategories/fields. For example: accounting attributes are used to create additional fields to support accounting transactions. The most recent list of USSGL attributes may be found on the USSGL web site:

http://www.fms.treas.gov/ussgl.

Basis Point (BP); Basis Points (BIPS) One basis point is equivalent to 0.01% (1/100th of a percent) or 0.0001 in decimal form.100 basis points is equivalent to 1.0%. For example, if the Federal Reserve Board raises interest rates by 25 basis points, it means that rates have risen by 0.25% percentage points. If rates were at 2.50%, and the Fed raised them by 0.25%, or 25 basis points, the new interest rate would be 2.75%.

Business/Work Days Every official work day of the week which are days between and including Monday to Saturday per Federal Reserve Bank. This does not include public holidays and Sundays.

Calendar Day Any day of the week.

Credit Alert Interactive Voice Response System (CAIVRS) An electronic system that maintains a list of individuals who have defaulted on any Federal debt (e.g., student loan, FHA and/or VA mortgage loan)

CHUMS Case Status The FHA Connection displays the following case status codes from

CHUMS:

01 – Suspense (Pending Endorsement) 04 – Endorsed 05 – Assigned to HUD 06 – Cancellation 07 – Reinstatement 08 – Termination (Non-claim) 09 – Termination (Claim)

CHUMS Desktop Calculator See HECM Desktop Calculator.

Closing Date The loan closing date is the date on which the borrower or borrowers sign the security instrument, loan agreement, and note.

Code of Federal Regulations Is the codification of the general and permanent rules published in the Federal Register by the departments and agencies of the Federal Government.

Cohort A group of loans endorsed in the same year even if disbursements occur in subsequent years. Post-1991 loans remain with their original cohort throughout the life of the loan, even if the loan is modified, and are categorized as financing account loans. A separate financing account is created for each fiscal year starting with fiscal year 1992. Pre-1992 loans and any that http://www.fms.treas.gov/ussgl http://www.investopedia.com/terms/f/frb.asp

HECM PWS Version 1 June 16, 2014 Page 12 are subsequently modified constitute a single cohort which is categorized as liquidating account loans.

Contractor A supplier or vendor awarded a contract to provide specific supplies or service to the Government. The term used in this contract refers to the prime.

Contracting Officer (CO) A person with authority to enter into, administer, and/or terminate contracts and make related determinations and findings on behalf of the Government. Note: the only individual who can legally bind the Government.

Credit Reform (CR), Federal Credit Reform Act (FCRA) A law enacted in 1990 with the purpose to (1) measure more accurately the costs of Federal credit programs; (2) place the cost of credit programs on a budgetary basis equivalent to other Federal spending; (3) encourage the delivery of benefits in the form most appropriate to the needs of beneficiaries; and (4) improve the allocation of resources among credit programs and between credit and other spending programs. Federal credit programs are created to accomplish a variety of social and economic goals. Agencies must implement budget policies and management practices that ensure the goals of credit programs are met while properly identifying and controlling costs. In addition, Federal receivables, whether from credit programs or other non-tax sources, must be serviced and collected in an efficient and effective manner to protect the value of the Federal Government's assets.

Credit Standing and Financial Assessment The process used to evaluate the mortgagors’ willingness and capacity to meet their financial obligations, and their ability to comply with the mortgage requirements. These are key components of underwriting all HECM transaction types (i.e., traditional, refinance, and purchase). This assessment should include a credit history analysis, a cash flow/residual income analysis, analysis of compensating factors and extenuating circumstances, and a final determination if the HECM applicant is eligible for the loan.

Deed-In-Lieu of Foreclosure When the title to the property is acquired by accepting the deed-in-lieu of foreclosure for HECM-Endorsed loans or HECM-Assigned notes.

Defective Service A service output that does not meet the standard of performance associated with the Performance Work Statement.

Deliverable Anything that can be physically delivered, but may include non-manufactured things such as meeting minutes or reports

Disbursement Date Date on which monies are paid to the borrower.

Do Not Pay List A list of mortgage lenders (and other businesses) that are ineligible to receive payments from the Federal Government. Mortgage lenders are added to this automated List when notified by HUD managers.

Due and Payable A mortgage will become due and payable when the borrower dies, conveys all title to the property, the property is no longer the borrower's principal residence, the borrower

HECM PWS Version 1 June 16, 2014 Page 13 does not occupy the property for 12 consecutive months for health reasons, or the borrower violates the mortgage covenants.

Electronic and Information Technology EIT has the same meaning as information technology except EIT also includes any equipment or interconnected system or subsystem of equipment that is used in the creation, conversion, or duplication of data or information. The term EIT, includes, but is not limited to, telecommunication products (such as telephones), information kiosks and transaction machines, worldwide websites, multimedia, and office equipment (such as copiers and fax machines).

Expenses Dollar value of monthly amount to include Federal and State Income Taxes; Property charges; Utility and Maintenance charges; Installment and revolving charges; and mortgage related payments that are used to assess the overall relationship between cash flow available to the senior and regular expenses.

FHA Appraisal Amount Value of property to be used as collateral for the HECM loan and captured by the FHAC after completion of the FHA Connection’s Appraisal Logging function.

This referred to in the FHAC as the FHA Appraised Value. This is done by the originating Mortgagee.

FHA Subsidiary Ledger System (FHASL) The core financial management system which consists of two ledgers: the General Ledger (FHA01) and the Cash Ledger (FHA02).

First 12-Month Disbursements Per Mortgagee Letter 2013-33, the following items must be included in the First 12-Month Disbursement Limit and initial MIP calculations:

The amount of Mandatory Obligations;

Disbursement to Mortgagor made at closing; and The amount of the Initial Disbursement Limit not taken by the Mortgagor at closing for

Term, Tenure, Line of Credit, Modified Term and Modified Tenure Payment Options.

Force Majeure Specific events that are beyond the control and without the fault or negligence of the Contractor. Examples of these events are (1) acts of God or of the public enemy, (2) acts of the Government in either its sovereign or contractual capacity, (3) fires, (4) floods, (5) epidemics, (6) quarantine restrictions, (7) strikes, (8) freight embargoes, and (9) unusually severe weather.

Government Furnished Property (GFP) Property in the possession of, directly acquired by, the Government and subsequently furnished to the Contractor for performance of a contract.

Government-furnished property includes, but is not limited to, spares and property furnished for repair, maintenance, overhaul, or modification. Government-furnished property also includes contractor-acquired property if the contractor-acquired property is a deliverable under a cost contract when accepted by the Government for continued use under the contract.

Government Technical Monitor (GTM) An individual designated by the Contracting Officer to assist in providing technical direction and monitoring performance under the contract.

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Government Technical Representative (GTR) An employee of the U.S. Government appointed by the Contracting Officer to perform contract administration activities in regard to technical issues. This individual has authority to provide technical direction to the Contractor as long as direction is within the scope of the contract, does not constitute a change, and has no funding implications. This individual does NOT have authority to change the terms and conditions of the contract nor authorize decisions that would change the negotiated price of the contract.

Growth Rate Factors Applicable to Line of Credit, Tenure, and Single Lump Sum payment options (or a combination of these) and are calculated from the Date of Disbursement at loan closing.

HECM Desktop Calculator An FHA Connection software tool that incorporates all of the new HECM requirements from Mortgagee Letter 2013-27. Mortgagees can upgrade existing HECM software by downloading the appropriate files from the HUD.GOV website at:

http://www.hud.gov/pub/chums/hecm_upgrade.html. If the software is not already installed, instructions are available for installation on the HUD.GOV website at:

http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/hecminst.

Home Ownership Centers (HOC) Office of Single Family Housing’s satellite offices that administer FHA Single Family programs for a specific geographical area. The HOCs are located in Atlanta, Georgia, Denver, Colorado, Philadelphia, Pennsylvania, and Santa Ana, California, and the states that they cover may be found at http://hudatwork.hud.gov/po/h/hs/hoc/phi/HOCMap.pdf.

HUD-1 Settlement Statement Document provided at closing that lists all expenses and charges paid by both the seller and the buyer.

Inherently Governmental Functions Activities that require either the exercise of discretion in applying Government authority, or the making of value judgments in making decisions for the Government.

Initial Disbursement Limit Currently the greatest of 60% of the Initial Principal Limit (IPL) or the sum of Mandatory Obligations, Taxes/Insurance 1st Year Payments, Additional 10% of IPL Usage Amount, Life Expectancy Set-Aside (LESA), and Repair Set Aside (RSA) Amount, not to exceed 100% of the Initial Principal Limit (IPL). This is the maximum amount that may be disbursed to the borrower and/or used for Mandatory Obligations, set asides, and other charges incurred with originating the HECM at:

loan closing and/or during the first 12-month disbursement period after loan closing (begins on day of loan closing and ends on the day before the anniversary date of loan closing), or loan closing only for the Single Disbursement Lump Sum Payment Plan.

Initial Mortgage Insurance Premium (IMIP) Non-refundable premium based on the amount of the mortgagor’s initial disbursement at loan closing. Currently mortgagees charge an initial MIP of 0.50 percent (0.50%) of the initial disbursement at loan closing when a mortgagor’s initial disbursement is 60% or less of the available principal limit per Mortgagee Letter 2013-27.

http://www.hud.gov/pub/chums/hecm_upgrade.html http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/hecminst http://hudatwork.hud.gov/po/h/hs/hoc/phi/HOCMap.pdf

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Currently mortgagees charge an initial MIP of 2.50 percent (2.50%) of the initial disbursement at loan closing when a mortgagor’s initial disbursement is greater than 60% of the available principal limit per Mortgagee Letter 2013-27.

Initial Disbursement Initial MIP Annual MIP Amounts of 60 Percent or less of the Principal Limit

0.50 Percent 1.25 Percent

Amounts greater than 60 Percent of the Principal Limit

2.50 Percent 1.25 Percent

Initial Principal Limit The amount of equity available at origination and is calculated as the product of the PLF and the MCA. The monthly increase to the principal limit must include the annual mortgage insurance rate as well as the mortgage note interest rate.

Lender This term is used primarily by HUD’s National Servicing Center to denote mortgagee and is distinct from servicer or originator.

Life Expectancy Set-Aside (LE Set Aside) Currently based on results of the financial assessment, a property charge funding option for HECM borrower that is used for the payment of taxes and hazard and flood insurance. The amount of the required LE Set-Aside shall be calculated based on the sum of the current tax and hazard and flood insurance property charges, adjusted annually by 1.2 to reflect anticipated increases over the term of the HECM, the expected rate, and the life expectancy from the Total Annual Loan Cost (TALC). See Mortgagee Letter 2013-33.

Line of Credit Growth – Credit Line Growth Rate The unused portion of the line of credit grows at the “credit line growth rate,” which is equal to the compounding rate. This is the same rate at which the principal limit and the loan balance grow, which is the current interest rate plus 0.5 percent. Therefore, the amount of funds available to the borrower from a line of credit grows larger each month for as long as any funds remain. HECM Counselors must not tell clients that HECM credit lines “earn interest,” because credit line growth is simply increased access to borrowing power, comparable to an increase in a credit limit on a credit card. Counselors should advise clients that proprietary reverse mortgages may have a lower credit line growth rate, or no credit line growth at all, which will affect the amount of cash available to the borrower over the life of the loan.

Loan-to-Value Ratio of the property's value to the amount that is mortgaged, i.e., the mortgage loan amount divided by the lesser of either the appraised value or the selling price. Example:

$300,000 appraised value of a home; $240,000 mortgage on the property. $240,000 / $300,000 = .80 or 80% Loan-to-Value ratio

Loan Administration Any servicing activities performed by the HECM mortgage holder, the HECM mortgage servicer, HUD’s Loan Servicing Contractor, and/or HUD personnel that involve but are not limited to routine servicer HECM-Endorsed loan requests including but not limited to Certificate of Indebtedness, Consent of Lienholder, Partial Releases, Due and Payable with and without HUD approval; Extension Requests (i.e., Request to Delay Foreclosure, Claims, DIL, HECM PWS Version 1 June 16, 2014 Page 16

Repairs, Appraisal), Short Sale, Preservation and Protection, Subordination, Substitution of Collateral, Request for HUD Advance; Zero Balance Administration; and any servicing activities associated with the HECM-Assigned note portfolio including but not limited to sending Annual Occupancy Certification; monitoring of death notices; monitoring of non-borrowing spouses and deferral of due and payable status, monitoring, tracking and payment of property charges; loan repayment letters; due and payable; Foreclosure; Deed-in-Lieu of Foreclosure; Short Sale; Family Sale; Bankruptcy Administration; Conveyances; 1st and 2nd Releases; Repurchase Administration;

Loss Draft Administration; Write-Offs and Certificate of Indebtedness; Payoff and Zero Balance Administration; Substitution of Collateral, Partial Release and Consent of Lienholder; remitting annual MIP; making disbursements from original principal loan amount; tracking and posting of all financial transactions and property charges due on the collateral for HECM; reconciling unpaid principal balance (UPB)/current principal limit (CPL); maintaining mortgagee of record and all servicer transfers for the HECM case through termination of insurance; filing of insurance claims on behalf of HECM mortgage loan holder of record; receiving proceeds from HUD; and reconciling and closing out of HECM loans.

Loan Production Functions normally performed by HECM mortgage originator that are performed as part of daily routines during endorsement. Loan Production is also referred to as Origination and covers case number assignment through loan set-up for remittance of mortgage insurance premium (MIP). The final stage of loan production is transferring the HECM-Endorsed loan to the FHA-approved HECM servicer.

Mandatory Obligations All non-recurring fees, third-party charges, and fees/charges incurred in connection with the origination of the HECM that are paid at closing or for which provision is made at closing for the mortgagee to subsequently fund any disbursements during the First 12- Month Disbursement Period that are a condition or a requirement for loan approval or any disbursements for a Repair Set-Aside, including the cost of repairs and the repair administration fee. Minor differences appear between the Mandatory Obligations for Traditional and Refinance Transactions versus those for Purchase Transactions (See Mortgagee Letter 2013-33.)

Mandatory Obligations for Traditional and Refinance Transactions Repair Set-Asides;

Property Tax and Flood and Hazard Insurance Payments scheduled for payment from the

Property Charge LE Set-Aside or from HECM proceeds within the First 12-Month Disbursement Period. Mortgagees must use the actual insurance premium and actual tax amount. If a new tax bill has not been issued, the mortgagee must use the prior year’s amount multiplied by 1.04; and

Property Tax, Flood and Hazard Insurance payments required by the Mortgagee to be paid at closing.

Mandatory Obligations for Purchase Transactions Property Tax and Flood and Hazard Insurance Payments scheduled for payment from the

Property Charge LE Set-Aside or from HECM proceeds within the First 12-Month Disbursement Period. Mortgagees must use the actual insurance premium and actual tax amount. If a new tax bill has not been issued, the mortgagee must use the prior year’s amount multiplied by 1.04;

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Property Tax, Flood and Hazard Insurance payments required by the Mortgagee to be paid at closing; and

The amount of the Principal that is advanced towards the purchase price of the subject property.

Maximum Claim Amount The minimum of the FHA loan limit and the appraised value (or sales price for HECM for Purchase loans) and the FHA Section 203(b) and Section 255 loan limits for the county in which the property is located. The MCA is used as the basis of the initial principal limit determination and as the cap of the potential insurance claim amount.

Monthly Income Qualifying ratios are not calculated for HECMs. The financial assessment is focused on assessing the mortgagor’s cash flow (income and expenses) and residual income to determine if they have the capacity to meet their obligations under the mortgage and to meet their living expenses. Mortgagees must use Cash Flow and Residual Income policy guidance found in the HECM Financial Assessment Reference Guide. This financial assessment includes traditional income sources used in Forward Mortgage income analysis plus, as applicable, imputed income/asset dissipation from all liquid assets which are defined as assets that can be converted to cash within one-year without payment of an IRS penalty.

Monthly Mortgage Insurance Premium (MMIP) The monthly MIP remitted by the mortgagee for the life of the mortgage. The current prevailing monthly MIP factor accrues daily on the outstanding balance at a rate equal to 1.250% percent per annum.

Monthly Payment The monthly payment amount scheduled to be made to the Mortgagor each month. This is required only for term, tenure, modified term and modified tenure payment plan types.

Monthly Property Tax & Insurance The amount set aside monthly for taxes and insurance due on the collateral for HECM. This field in the FHA Connection captures the amount of monthly set aside which is being held for annual taxes and insurance required from financial assessment and condition for the HECM.

Mortgagee The financial entity that has as its principal activity the lending or investment of funds in real estate mortgages. Mortgagees are classified by FHA based on the functions they perform. Mortgagees can be FHA-approved to originate (originators), to service (servicers), to hold beneficial interest (holders), and to invest (investors). Mortgagees are also referred to as mortgage lenders or lenders.

Mortgage Insurance Premium Factor A factor used to calculate the amount of upfront (initial) and/or monthly mortgage insurance premium for a specific loan or group of loans. Examples of mortgage insurance premium factors are the amount of the loan, loan-to-value ratio, and in the case of HECM loans the percentage of the Principal Limit.

Mortgagor The original borrower under a mortgage and his successors and assigns.

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Net Principal Balance The Net Principal Balance based upon disbursements, fees, partial repayments, interest accruals, MIP – calculations must apply any partial repayments in a certain order to ensure accurate accounting of Principal Balance

Net Principal Limit The net principal limit is calculated by subtracting from the principal limit any initial payments to or on behalf of the borrower, such as the initial MIP, closing costs, or cash payment to the borrower, and any funds set aside from the principal limit for monthly servicing fees or set asides for repairs after closing and first-year property charges (see HUD Handbook 4330.1). The net principal limit may be drawn by a borrower as monthly payments, or as a line of credit, or both. The net principal limit is used to determine the maximum amount of payments that a borrower can receive after closing.

Non-Borrowing Spouse – The spouse, as determined by the law of the state in which the spouse and mortgagor reside or the state of celebration, of the HECM mortgagor at the time of closing.

Non-Recourse Loan A loan where the mortgage lender’s recovery from the borrower is limited to the value of the home. No deficiency judgment is taken against the borrower or the estate because there is no personal liability for payment of the loan balance.

Originator This term refers to a specific mortgage lender approved by FHA to originate mortgages. Originators perform all parts of the loan origination process – loan application, underwriting, closing, funding, and submitting mortgage for FHA insurance endorsement.

PAY.GOV A secure, web-based application of the Department of the Treasury used by Federal government agencies, including HUD, to collect monies owed from individuals and businesses as well as to disburse payments to these groups. Example: a lender would remit mortgage insurance premiums on behalf of an individual to HUD via PAY.GOV.

Payment Plan The borrower has the choice of receiving the HECM mortgage proceeds through one of the following payment plans:

Tenure Under this payment plan, the borrower will receive equal monthly payments from the Servicer for as long as the borrower lives and continues to occupy the property as a principal residence.

Term Under this payment plan, the borrower will receive equal monthly payments from the Servicer for a fixed period of months selected by the borrower.

Line of Credit Under this payment plan, the borrower will receive the mortgage proceeds in unscheduled payments or in installments, at times and in amounts of the borrower's choosing, until the line of credit is exhausted.

Modified Tenure Under this payment plan, the borrower may combine a line of credit with monthly payments for life, or for as long as the borrower continues to live in the home as a principal residence. In exchange for reduced monthly payments, the borrower will set aside a

HECM PWS Version 1 June 16, 2014 Page 19 specified amount of money for a line of credit, on which he or she can draw until the line of credit is exhausted.

Modified Term Under this payment plan, the borrower may combine a line of credit with monthly payments for a fixed period of months selected by the borrower. In exchange for reduced monthly payments, the borrower will set aside a specified amount of money for a line of credit, on which he or she can draw until the line of credit is exhausted.

Lump Sum A single disbursement at origination equal to the greatest of 60% of the Principal Limit, or the mandatory obligations plus 10% of the Principal Limit. See Mortgagee Letter 2013-27.

Performance Requirements Summary (PRS) A listing of the performance requirements under the contract that are to be evaluated by the Government on a regular basis, performance indicators for these requirements, performance standards for these requirement and surveillance methods to be used to determine if performance standards are met (and optionally, any maximum payment for meeting the acceptable quality level (AQL) and any deduction from payment for not meeting the AQL).

Performance Standard Contractor’s performance level required by the Government. This is also known as the acceptable quality level (AQL).

Performance Work Statement (PWS) A statement of work for performance based acquisitions that describe the required results in clear, specific and objective terms with measurable outcomes.

Personally Identifiable Information (PII) Information that identifies a person or can be used in conjunction with other information to identify a person, regardless of whether a person would want it disclosed. If the information or collection of information connects to an individual it is classified as personally identifiable information.

Physical Security Actions that prevent the loss or damage of Government property.

Principal Limit The Principal Limit is determined by multiplying the Maximum Claim Amount (MCA) by the Principal Limit Factor corresponding to the age of the youngest mortgagor and the Expected Average Mortgage Interest Rate. NOTE: HUD manages its insurance risk by limiting the percentage of equity available to the borrower by setting the Principal Limit.