HUD Insured MultifamilyMortgage Servicing

					                U.S. Department of Housing and Urban Development
                               H O U S I N G

Special Attention of:          Transmittal for Handbook No.: 4350.4 CHG-
7

Directors of Housing;                 Issued: June 26, 1996
Directors of Multifamily
  Housing Division;
Asset Management Branch Chiefs;
All HUD-Approved Mortgagees

1.    This transmits additional guidance for filing Notices of Default,
      Form HUD-92426, and describes suggested and required actions in
the
      event of a "rolling default."

2.    Explanation of Materials Transmitted:

     Changes on pages 2-34, 2-40, and 2-41 inform mortgagees in greater
     detail when Form HUD-92426 must be filed in order to avoid
     surcharges for late or improper filings. Chapter 2 has been
     reformatted in order to eliminate printing and typographical
errors
     contained in the existing Chapter 2, and the language contained in
     the "Note" in paragraph 2-26 has been restated at paragraph 2-39
     for consistency.

3.    Effective Date:   Upon receipt.

4:    Filing Instructions:

      Remove:                             Insert:

      The Foreword and the entire         Foreword dated 2/92;
      Table of Contents of various        Table of Contents,
      dates; All pages of Chapter 2         pages ii through
      of various dates.                     ix dated 6/96;
                                          Chapter 2, pages 2-1
                                            through 2-43 dated
                                            6/96.

                               Assistant Secretary for Housing-
                               Federal Housing Commissioner

HMM: Distribution: W-3-1, R-1, R-2, R-3-1(H)(RC), R-3-2, R-3-3, R-6, R-
6-2,
                   R-7, R-7-2, R-8, ASC
                                                       4350.4

                                  Foreword

There may be up to 400 mortgagees servicing HUD-Insured mortgages on
nearly 16,000 multifamily projects with a combined value of
approximately $45 billion as of the issue date of this handbook. This
handbook outlines what HUD believes to be procedures that mortgagees
should use as servicing practices; it restates certain minimum
servicing
standards and requirements that are Regulatory (or Statutory) in
nature.
It also contains suggestions and recommendations for loan
administration. Required practices are typically expressed by "must,"
"shall," or "may not." Advisory or recommended practices are expressed
by "ought to," "should," or similar expressions.

This handbook establishes procedures for HUD Field Offices to follow in
reviewing the mortgagee servicing activities of mortgagees that hold or
service HUD-insured mortgages on multifamily projects and in obtaining
compliance with the Department's mortgage servicing requirements.

By including selected Mortgagee Letters in an Appendix, this handbook
provides lenders who hold or service these mortgages a convenient
reference for existing procedures and requirements of the Department.
Mortgagees should file future Mortgagee Letters, as they are issued, in
that Appendix. Failure to do so may result in their new employees
pursuing inaccurate or incorrect mortgage servicing procedures; the
resulting lack of current information will not excuse mortgagees from
their servicing responsibilities. Appropriate HUD employees also
should
file new Mortgagee Letters in the Appendix. Mortgagee Letters that are
issued after the issuance of this Handbook are hereby incorporated into
this Handbook by this specific reference.

This handbook does not establish new rules of procedure nor does it
change the existing policy of the Department. Earlier issuances are
supplemented by this handbook and HUD's expectations of mortgagees are
clarified. As of the issue date of this handbook, HUD Field Offices
bear primary responsibility for conducting on-site reviews of various
mortgagee servicing activities of mortgagees that service mortgages
insured under HUD's single family mortgage insurance programs.

This handbook provides guidance to HUD Field and Regional Offices for
submitting information regarding mortgagees that service insured
multifamily mortgages to the appropriate HUD Headquarters staff when
the
Field Offices are recommending the imposition of sanctions against
multifamily mortgagees.

                                    i                             2/92
4350.4 CHG-7

6/96                                ii

                                                        4350.4 CHG-7

References:

       Hbk. 2000.3, Office of Inspector General Activities

       Hbk. 4010.1, Definitions, Policy Statements and General Rulings

       Hbk. 4060.1, Mortgagee Approval Handbook
       Hbk. 4060.2, Mortgagee Review Board
       Hbk. 4060.3, Field Office Guide for Mortgagee Monitoring
       Hbk. 4065.1, Previous Participation Handbook
       Hbk. 4110.2, Mortgagees' Guide Home Mortgage Fiscal Instructions

       Hbk. 4350.1, Insured Project Servicing Handbook

       Hbk. 4370.1, Reviewing Annual and Monthly Financial Reports

     Hbk. 4370.2, Financial Operations and Accounting Procedures for
Insured
                  Multifamily Projects

       Hbk. 4372.1, Audit Guide for use by Independent Public Accountants
for
                   Audit of Mortgagors having HUD-Insured or Secretary
held
                   Multifamily Mortgages

       Hbk. 4561.1, Coinsurance for Mortgage Lenders (Section 221(d))

       Hbk. 4561.2, Management Servicing and Disposition Requirements for
                      Projects with 221(d) Co-insured Loans

       Hbk. 4566.1, Coinsurance for Private Lenders - Section 223(f)

       Hbk. 4566.2, Management Servicing and Disposition Requirements for
                      Projects with 223(f) Co-insured Loans

                                    iii                              6/96
4350.4 CHG-7

List of forms mentioned in this Handbook:

Form No.                       Form Name                       Appendix
No.

HUD-434                   Statement of Taxes                         5-D

HUD-2537                  Mortgagee's Application for                5-C
                          Partial Settlement (M/F Mtg.)

HUD-2741                  Instructions for Applications for          5-A
                          Insurance Benefits (M/F Mortgages)

HUD-2742                  Fiscal Data in Support of Claim            5-E
                          for Insurance Benefits (M/F Mtg.)

HUD-2744A                 Allocation of Mortgagee Receipts           5-F
                          and Disbursements, Schedule A

HUD-2744B                 Mortgagee's Report of Project              5-G
                          Collections, Schedule B

HUD-2744C                 Mortgagee's Report of Project              5-H
                          Disbursements, Schedule C

HUD-2744D                 Other Disbursements by Mortgagee           5-I
HUD-2744E                 Mortgagee Report of Special             5-J
                          Escrow, Schedule E

HUD-2747                  Application for Insurance               5-B
                          Benefits (M/F Mortgage)

HUD-9250                  Reserve Fund for Replacements           N/A
                          Authorization

HUD-9807                  Request for Termination of              3
                          Multifamily Mortgage Insurance

HUD-9822                  Physical Inspection Report and          1
                          Estimate of Repair Costs

HUD-9834                  Management Review of Multifamily        N/A
                          Projects

HUD-92080                 Mortgage Record Change                  4

HUD-92266                 Application for Transfer of             N/A
                          Physical Assets

HUD-92426                 Notice of Default Status Report         2
                          on Multifamily Housing Projects
6/96                                iv

                          U.S. Department of Housing and Urban
Development

Special Attention of:               Transmittal Handbook No.: 4350.4
CHG-6
Directors of Housing;
Directors of Multifamily            Issued:    January 23, 1996
 Housing Division;
Asset Management Branch Chiefs;
Owners and Management Agents
Contract Administrators

1.   This transmits the revised policy for holding and investing funds
in the
     Reserve for Replacement Account and Residual Receipts Account,
Change 6
     to HUD Handbook 4350.4, Insured Multifamily Mortgagee Servicing
and
     Field Office Monitoring Handbook.

2.     Explanation of Materials Transmitted:

       This revised policy authorizes the mortgagee, after consultation
with
     the project owner, to invest funds in excess of $100,000 in U. S.
     government-backed securities and to hold funds in excess of
$100,000 in
     institutions under the control of, and whose deposits are insured
by,
     the Federal Deposit Insurance Corporation, National Credit Union
     Association, or other U. S. government insurance corporations
under
     certain conditions. Further, this revised policy 1) removes the
list of
     acceptable investment vehicles, 2) acknowledges and enforces the
     provisions of the regulations, the Regulatory Agreement and
Mortgagee's
     Certificate that state the Reserve for Replacement Funds shall be
     established by and under the control of the mortgagee, and 3)
places the
     responsibility for determining the appropriate investment with the
owner
     and the mortgagee.

       Also transmitted are corrections to Paragraph 1-17. Regulatory
       Authority, which reflect the mortgagee approval regulations that
were
     revised and renumbered by a final rule which was published on
December
     9, 1992. The new citation for the mortgagee approval regulations
is 24
     CFR Part 202.

3.     Effective Date:   Upon receipt.

4.     Filing Instructions:

       Remove                                 Insert

       Table of Contents                  Table of Contents
       Page iv dated 2/94                 Page iv dated 2/94
       Page v dated 2/94                  Page v dated 12/95
       Page vi dated 2/94                 Page vi dated 12/95
       Page vii dated 2/92                Page vii dated 2/92

H: Distribution:   W-3-1

       Filing Instructions - Continued:

       Remove                                 Insert

       Page 1-13 dated 2/92               Page 1-13 dated 12/95
       Page 1-14 dated 1/94               Page 1-14 dated 12/95
       Pages 2-22 & 2-23 dated 2/94       Pages 2-22 & 2-23 dated 12/95
       Page 2-24 dated 10/92              Page 2-24 dated 12/95
       Page 2-25 dated 2/92               Page 2-25 dated 12/95
       Page 2-26 dated 2/92               Page 2-26 dated 12/95
       Page 2-27 dated 2/92               Page 2-27 dated 2/92
       Page 2-28 dated 2/92               Page 2-28 dated 2/92
       Page 2-29 dated 2/92               Page 2-29 dated 2/92
       Page 2-30 dated 2/92               Page 2-30 dated 2/92
       Page 2-31 dated 10/92              Page 2-31 dated 2/92
       Page 2-32 dated 2/92               Page 2-32 dated 2/92
       Page 2-33 dated 2/92               Page 2-33 dated 2/92
       Page 2-34 dated 2/92               Page 2-34 dated 10/92
       Page 2-35 dated 2/92               Page 2-35 dated 2/92
     Page   2-36   dated   2/92               Page   2-36   dated   2/92
     Page   2-37   dated   2/92               Page   2-37   dated   2/92
     Page   2-38   dated   2/92               Page   2-38   dated   2/92
     Page   2-39   dated   8/93               Page   2-39   dated   2/92
                                              Page   2-40   dated   2/92
                                              Page   2-41   dated   2/92
                                              Page   2-42   dated   8/93

                              Assistant Secretary for Housing-
                              Federal Housing Commissioner

                                  U.S. Department of Housing and Urban
Development

                                              H O U S I N G


 Special Attention of:
Regional Administrators,                  Transmittal Handbook No.:
4350.4
Directors of Regional Housing,
CHG-5
Managers of Category A, B, and C Offices Issued: 2/23/94
Directors of Housing Management Division,
Directors of Housing Development Division,
Loan Management Branch Chiefs


1.   This transmits Change 5 to HUD Handbook 4350.4, Insured
     Multifamily Mortgagee Servicing and Field Office Remote
     Monitoring.

2.   Explanation of Materials Transmitted:

     This change allows the mortgagor to request the mortgagee to
     invest funds in the Reserve for Replacements and Residual
     Receipts in a tax-exempt mutual fund.

3.   Effective date:

     Upon receipt

4.   Filing instructions:

     Remove                              Insert

     Table of Contents                   Table of Contents
       Pages iv through vii                Pages iv through vi, dated
     Pages 2-22 through 2-38               2/94; Page vii, dated 2/92
                                         Pages 2-22 & 2-23, dated 2/94
                                         Page 2-24, dated 10/92
                                         Pages 2-25 through 2-30,
                                           dated 2/92
                                         Page 2-31, dated 10/92
                                         Pages 2-32 through 2-38,
                                           dated 2/92
                                         Page 2-39, dated 10/92
                                   __________________________________
                                   Assistant Secretary for Housing
                                   - Federal Housing Commissioner


W-3-1,W-2(H),W-3(A)(H)(OGC)(ZAS),W-4(H),R-1,R-2,

R-3-1,R-3-2,R-3-3,R-6-2,R-7,R-8,State Agencies & All

HUD-Approved Mortgagees

                            U.S. Department of Housing and Urban
Development

                                        H O U S I N G


 Special Attention of:
Regional Administrators,                  Transmittal Handbook No.:
4350.4
Directors of Regional Housing,
CHG-5
Managers of Category A, B, and C Offices Issued: 2/23/94
Directors of Housing Management Division,
Directors of Housing Development Division,
Loan Management Branch Chiefs


1.   This transmits Change 5 to HUD Handbook 4350.4, Insured
     Multifamily Mortgagee Servicing and Field Office Remote
     Monitoring.

2.   Explanation of Materials Transmitted:

     This change allows the mortgagor to request the mortgagee to
     invest funds in the Reserve for Replacements and Residual
     Receipts in a tax-exempt mutual fund.

3.   Effective date:

     Upon receipt

4.   Filing instructions:

     Remove                        Insert

     Table of Contents             Table of Contents
       Pages iv through vii          Pages iv through vi, dated
     Pages 2-22 through 2-38         2/94; Page vii, dated 2/92
                                   Pages 2-22 & 2-23, dated 2/94
                                   Page 2-24, dated 10/92
                                   Pages 2-25 through 2-30,
                                     dated 2/92
                                   Page 2-31, dated 10/92
                                   Pages 2-32 through 2-38,
                                     dated 2/92
                                   Page 2-39, dated 10/92

                                   __________________________________
                                   Assistant Secretary for Housing
                                   - Federal Housing Commissioner


W-3-1,W-2(H),W-3(A)(H)(OGC)(ZAS),W-4(H),R-1,R-2,

R-3-1,R-3-2,R-3-3,R-6-2,R-7,R-8,State Agencies & All

HUD-Approved Mortgagees

HUD-23 (9-81)

                       U.S. Department of Housing and Urban Development

                                       H O U S I N G


  Special Attention of:               Transmittal Handbook No.: 4350.4
Regional Administrators,                                         CHG-4
Directors of Regional Housing,        Issued: February 1, 1994
Managers of Category A, B, and C Offices,
Directors of Housing Management Divisions,
Loan Management Branch Chiefs, and
All HUD-approved Mortgagees


1.   This transmits Change 4 to HUD Handbook 4350.4, Insured
     Multifamily Mortgagee Servicing and Field Office Remote
     Monitoring Handbook.

2.   Explanation of Material Transmitted:

     a.   This change gives the mortgagee the authority to place
          escrow funds for taxes and insurance in accounts where
          the total funds exceed $100,000 per banking
          institution.

     b.   This change establishes criteria for determining which
          banking institution is qualified to hold deposits in
          excess of $100,000.

3.   Effective date:

     Upon receipt

4.   Filing Instructions:

     Remove                                 Insert

     Table of Contents,              Table of Contents,
     Pages iv through vii            Pages iv through vi,
      dated 2/92                      dated 1/94;
     Pages 1-13 through 1-15         Page vii dated 2/92
     Pages 2-11 through 2-37         Pages 1-13 dated 2/92;
                                      Pages 1-14 through 1-16
                                       dated 1/94
                                      Pages 2-11 & 2-12 dated 1/94
                                      Pages 2-13 through 2-17
                                       dated 2/92
                                      Pages 2-18 through 2-23
                                       dated 10/92


4.   Filing Instructions (Continued):

     Remove                                 Insert

                                      Pages 2-24 through 2-29
                                       dated 2/92
                                      Pages 2-30 through 2-31
                                       dated 10/92
                                      Pages 2-32 through 2-37
                                       dated 2/92
                                      Page 2-38 dated 10/92

                             ________________________________________
                               Assistant Secretary for Housing
                                 - Federal Housing Commissioner


                                  2

W-3-1, W-2(H), W-3(A)(H)(OGC)(ZAS), W-4(H), R-1,

R-2, R-3-1, R-3-2, R-3-3, R-3, R-6-1, R-6-2, R-7,

R-7-1, R-8, State Agencies and All Approved Mortgagees

Approved Mortgagees                 HUD-23 (9-81)
W-3-1    Directives Management Officers--Headquarters and Regions,
         library, ACIR (Advisory Commission on Intergovermental
         Relations)
W-2      HQ Office Directors, Special Assistants,
         those reporting directly to Assistant Secretaries
W-4      Branch Chiefs, multiple copies for staff
R-1      Regional Administrators, Deputy Regional Administrators
R-2      Office Directors, Principal Assistants in Regional
         Administrators' offices
R-3-1    Bulk shipment to Regional Offices for selective
         distribution by program area
R-3-2    Directors, Administrative Services Divisions and
         Administrative and Management Services Divisions, and
         Administrative staffs
R-3-3    Category D offices - bulk
R-3      Bulk shipment to Regional Offices
R-6-1    Category A offices - bulk
R-6-2    Category A offices - Division Directors
R-7      Category B offices - Office Managers and Deputy Office
         Managers
R-7-1    Category B offices - bulk
R-8      Category C offices - Office Managers and Deputy Office
          Managers

                            U.S. Department of Housing and Urban
Development


  Special Attention of:               Transmittal Handbook No: 4350.4
CHG-3
Regional Administrators,
Directors of Regional Housing,        Issued: August 25, 1993
Managers of Category A, B, and C Offices,
Directors of Housing Management
Divisions, Loan Management Branch Chiefs,
All HUD-approved Mortgagees

1.   This Transmits
     Change No. 3 to HUD Handbook 4350.4

     Explanation of Material Transmitted:

     a.   The change conforms   the language contained in the
          "Note" on page 2-37   to the procedures for retaining
          Forms HUD-9250 that   were described in Mortgagee Letter
          93-12 dated June 3,   1993.

     b.   Handbook users also are reminded to file Mortgagee
          Letter 93-12 and future multifamily mortgagee letters
          in Appendix No. 7 of the Handbook.

Effective Date:   Upon Receipt.

     Filing Instructions:

     Remove:                               Insert:
     Page 2-37 dated 10/92                 Page 2-37 dated 8/93

                        __________________________________
                        Assistant Secretary for Housing
                        - Federal Housing Commissioner


W-3-1, W-2(H),W-3(A)(H),(OGC)(ZAS),W-4(H),R-1,R-2,R-3-1,

R-3-2,R-3-3,R-3,R-6-1,R-6-2,R-7,R-7-1,R-8

State Agencies & All HUD-Approved Mortgagees

HUD-23 (9-81)
W-3-1    Directives Management Officers--Headquarters and Regions,
         library, ACIR (Advisory Commission on Intergovermental
         Relations)

                             U.S. Department of Housing and Urban
Development
  Special Afternoon of:               Transmittal Handbook No.: 43504
CHG-2
Regional Administrators,
Directors of Regional Housing,        Issued: 7/8/93
Managers of Category A, B, and C Offices,
Directors of Housing Management
Divisions, Loan Management Branch Chiefs,
All HUD-approved Mortgagees

 1.    This Transmits
      Change No. 2 to HUD Handbook 4350.4

      Explanation of Material Transmitted:

      a.   The change transmits Form HUD-9807, "Insurance
           Termination Request for Multifamily Mortgage," dated
           4/92 as Appendix No. 3 of the Handbook.

      b.   Previous editions of this form are obsolete. Supplies
           of these forms are maintained in the HUD Regional
           Offices. Forms may be obtained from the HUD Regional
           Offices. Requests for forms should be sent to the
           attention of "Forms Supply."

Effective Date:   Upon Receipt.

      Filing Instructions:

      Remove:                                Insert:
      Page marked, "Appendix 3,              Appendix 3, pages 1 and 2
      (RESERVED)"                            dated 7/93

                                  __________________________________
                                  Assistant Secretary for Housing
                                  - Federal Housing Commissioner


W-3-1,W-2(H),W-3(A)(H)(OGC)(ZAS),W-4(H),R-1,R-2,R-3-1,

State Agencies & All HUD-Approved mortgagees,

R-3-2,R-3-3,R-3,R-6-1,R-6-2,R-7,R-7-1,R-8

                                              H O U S I N G


  Special Attention of:                Transmittal Handbook No.: 4350.4
CHG-1

Regional Administrators,
Directors of Regional Housing,       Issued: October 7, 1992
Managers of Category A, B, and C Offices,
Directors of Housing Management
Divisions, Loan Management Branch Chiefs,
All HUD-approved Mortgagees
  1. This Transmits
     Change No. 1 to HUD Handbook 4350.4
    Explanation of Material Transmitted:

    a.   The change makes technical, administrative, and
         typographical corrections that were undetected during
         proofreading of the original Handbook. Brief comments
         on several of the corrections follow.

    b.   Physical Inspections by Mortgagees. Chapter 2 of the
         handbook required and still requires that physical
         inspection reports be mailed to HUD Field Offices and
         project owners within 30 days from the date of the
         inspection. This requirement has not changed.
         However, in Chapter 5, Field Office criteria for
         recommending sanctions against mortgagees were not
         consistent with the Chapter 2 reporting requirement in
         that a 15 day timeframe/deadline was used as an
         evaluating criterion in Chapter 5. This Change No. 1
         eliminates that inconsistency and contains the text
         that should have been printed when the Handbook was
         issued. Because some misunderstandings may have
         resulted from the inconsistency, one sentence has been
         added to the original text on page 2-20 to encourage
         mortgagees (but not require them) to inform HUD Field
         Offices when the mortgagees can anticipate being unable
         to meet the 30 day reporting deadline. When they do
         so, HUD Field Offices are expected to take extenuating
         circumstances into consideration before recommending
         sanctions against a mortgagee.

    c.   "Table 2" in Chapter 2: "Note 1" on page 2-29 has been
         revised to remove a possible ambiguity about the effect
         of leap years on various deadlines.

    d.   This Change makes a minor, technical/administrative
         correction to the general description of mortgage
         insurance claims payments on page 4-7.


    f.   Because the errata should have been but were not
         detected during final proofreading and printing, this
         Change is effective retroactive to the Issue Date of
         the original Handbook: February 1992.

Effective Date:   Upon Receipt, retroactive to February 1992.

    Filing Instructions:

    Remove:                              Insert:
                                         Handbook Cover Page
    Pages 2-17,   2-18, 2-19,            Pages 2-17 dated 2/92
    2-20, 2-21,   2-22, 2-29,            and 2-18 dated 10/92;
    2-30, 2-37;   4-7, 4-8;              Pages 2-19 dated 2/92
    5-7 through   5-12, dated 2/92       and 2-20 dated 10/92;
                                         Pages 2-21 and 2-22
                                         dated 10/92;
                                         Pages 2-29 dated 10/92
                                          and 2-30 dated 2/92;
                                          Page 2-37 dated 10/92;
                                          Pages 4-7 dated 10/92
                                          and 4-8 dated 2/92;
                                          Pages 5-7 dated 2/92
                                          and 5-8 dated 10/92.
                                          Pages 5-9 through 5-12
                                          dated 10/92

                        __________________________________
                        Assistant Secretary for Housing
                        -Federal Housing Commissioner

                            U.S. Department of Housing and Urban
Development

                                        H O U S I N G


Special Attention of:                       Transmittal Handbook No.:
4350.4

 All Regional Administrators;               Issued:   2/92
 Directors of Regional Housing;
 Managers, Category A, B, and C Offices
 All HUD-approved Mortgagees


1.   This Transmits

     A new HUD Handbook 4350.4, Insured Multifamily Mortgagee
     Servicing and Field Office Remote Monitoring Handbook,
     dated February 1992.

2.   Explanation of Material Transmitted:

     a.   This handbook provides practices and procedures for
          investing and servicing mortgagees to use in
          servicing mortgages insured under HUD's multifamily
          mortgage insurance programs.

     b.   This handbook contains instructions for HUD's Field
          Offices about conducting a program of remote
          monitoring of multifamily mortgagees from within the
          Field Offices. It provides procedures for the Field
          Offices to use in evaluating the results of their
          remote monitoring activity. It contains guidance
          for the Field Offices to use when recommending the
          imposition of sanctions against multifamily
          mortgagees.

3.   Effective Date:

      Upon receipt.

4.   Filing Instructions:
     Insert:

     HUD Handbook 4350


___________________________________
                                       Assistant Secretary for Housing
                                         - Federal Housing
Commissioner


W-3-1, W-2(H), W-3(A)(H),(OGC)(ZAS), W-4(H), R-1, R-2,

R- 3-1, R-3-2, R-3-3, R-3, R-6-1, R-6-2, R-7, R-7-1,

R-8, State Agencies & All HUD-Approved Mortgagees

HUD-23 (9-81)
W-3-1    Directives Management Officers--Headquarters and Regions,
         library, ACIR (Advisory Commission on Intergovermental
         Relations)
W-2      HQ Office Directors, Special Assistants,
         those reporting directly to Assistant Secretaries
W-4      Branch Chiefs, multiple copies for staff
R-1      Regional Administrators, Deputy Regional Administrators
R-2      Office Directors, Principal Assistants in Regional
         Administrators' offices
R-3-1    Bulk shipment to Regional Offices for selective
         distribution by program area
R-3-2    Directors, Administrative Services Divisions and
         Administrative and Management Services Divisions, and
         Administrative staffs
R-3-3    Category D offices - bulk
R-3      Bulk shipment to Regional Offices
R-6-1    Category A offices - bulk
R-6-2    Category A offices - Division Directors
R-7      Category B offices - Office Managers and Deputy Office
         Managers
R-7-1    Category B offices - bulk
R-8      Category C offices - Office Managers and Deputy Office
         Managers

_____________________________________________________________________

                          Handbook
4350.4

                          U.S. Department of Housing and Urban
Development
                          Office of Housing


                          Departmental Staff
                          and Program
                          Participants
February 1992             Insured Multifamily
                          Mortgagee Servicing
                          and Field Office
                          Remote Monitoring


W-3-1,W-2(H),W-3(A)(H)(OGC)(ZAS),W-4(H),R-1,R-2,R-3-1,

State Agencies & All HUD-Approved Mortgagees,R-3-2,

R-3-3,R-3,R-6-1,R-6-2,R-7,R-7-1,R-8
4350.4
_______________________________________________________________________
____

        CHAPTER 1.     PRACTICES, PROCEDURES, AND RESPONSIBILITIES

                     Section 1.   Introduction

 1-1.   General. Comprehensive servicing of insured project
        mortgages by mortgagees is of vital importance to
        program participants and to HUD. This handbook
        outlines servicing procedures consistent with well
        established industry standards. It sets forth, in one
        source, minimum requirements for servicing insured
        multifamily mortgages. Before the issuance of this
        handbook, HUD reviewed mortgagees to assure their
        compliance with HUD regulations and handbook
        requirements for servicing HUD-insured single-family
        mortgages only. This handbook expands that procedure
        and delineates responsibilities for HUD staff to use
        when reviewing mortgagees investing in and servicing
        multifamily mortgages. By following the provisions of
        this handbook, HUD staff and mortgagees should achieve
        the timely and proper servicing of mortgages that will
        reduce avoidable insurance fund claims. The information
        flows contemplated in this handbook should open new
        lines of communications between mortgagees and HUD's
        Field, Regional, and Headquarters staff. HUD hopes
        that the quality of servicing by mortgagees will be
        enhanced and that the ultimate profitability of
        servicing and holding mortgagees will be increased.

        HUD continually strives to detect incidents of fraud
        and to reduce waste and mismanagement in its programs
        wherever possible. The latter chapters of this
        handbook describe the degrees of expected compliance
        with regulations, administrative requirements, and
        recommendations. Chapter 5 describes the "remote
        monitoring" procedures HUD Field Offices are to use and
        describes HUD's Regional and Headquarters Offices'
        involvement in the imposition of sanctions against
        insured, as opposed to coinsured, mortgagees. Chapter
        6 deals with remedies and enforcement activities, lists
        the sanctions available to HUD, and briefly mentions
        the procedural steps HUD will follow when imposing
        sanctions on mortgagees.

 1-2.   Definitions:

        a.   Approved Mortgagee: A mortgagee that has been
             approved by HUD for participation in the HUD/FHA
             mortgage insurance programs upon filing a request
             for approval on a form prescribed by the Federal
              Housing Commissioner. Approval of the application
              shall constitute an agreement between the
     mortgagee and the Commissioner that shall govern
     the mortgagee's continued approval. Approval may
     be restricted to participation in the Home
     Mortgage Insurance Programs or the Multifamily
     Mortgage Insurance Programs. Approval in either
     program may be restricted to geographic areas
     designated by the Commissioner.

b.   Coinsuring Mortgagee: An approved mortgagee that
     has been further approved by HUD for participation
     in the Section 221(d)(3), 221(d)(4), 223(f), or
     232 coinsurance programs under the provisions of
     24 CFR Parts 251, 252, and 255, Subparts B, as
     they existed immediately before November 12, 1990,
     which is the effective date of the termination of
     the coinsurance program, and who shares the risk
     of loss.

c.   Governmental, Quasi-governmental, and Federally
     Chartered Institutions and National Mortgage
     Associations: A federal, state, or municipal
     governmental agency, a Federal Reserve Bank, a
     Federal Home Loan Bank, the Governmental National
     Mortgage Association, the Federal National
     Mortgage Association, or any other institution
     that is empowered to hold mortgages insured under
     the National Housing Act. If it becomes an
     approved mortgagee it may submit applications for
     the insurance of mortgages and may purchase, hold,
     service, and sell insured mortgages. It may
     designate another approved mortgagee as its
     authorized agent for the purposes of servicing
     mortgages and submitting applications for mortgage
     insurance in its name and on its behalf to HUD.

d.   Investing Mortgagee ("Holding" mortgagee): An
     approved mortgagee that is an organization that
     is not approved as another type of institution
     (e.g., Loan Correspondent, Servicing Mortgagee)
     and that invests funds under its own control.
     Such mortgagees include charitable and nonprofit
     institutions, pension funds, and trusts. It may
     purchase, hold, and sell HUD-insured mortgages,
     but it may not submit applications for the
     insurance of mortgages. It may not service
     HUD-insured mortgages without the prior approval of
     the Office of Lender Activities and Land Sales
     Registration (OLA) in HUD Headquarters but it
     shall arrange for the servicing of HUD-insured
     mortgages it acquires.

e.   Loan Correspondent:   An approved mortgagee that is
     an institution that lends or invests funds in real
     estate mortgages for sale to its sponsor(s). It
     may submit applications for the insurance of
     mortgages and may purchase, service, and sell
     HUD-insured mortgages. It may not retain insured
      mortgages in its own portfolio nor sell them to
      any mortgagee other than its sponsor(s) except
      with the prior approval of the HUD Field Office in
      whose jurisdiction the loan correspondent's office
      is located.

 f.   Mortgagee: The original lender under a mortgage
      and its successors and assigns, including the
      holders of credit instruments issued under a trust
      indenture, mortgage, or deed of trust pursuant to
      which such holders act by and through a trustee
      therein named.

 g.   Nonsupervised Mortgagee: An institution that has
      as its principal activity the lending or
      investment of funds in real estate mortgages and
      is not subject to the inspection and supervision
      of a governmental agency as described in the
      following definition of "Supervised Mortgagee."
      If it becomes an approved mortgagee it may submit
      applications for the insurance of mortgages and it
      may purchase, hold, service, and sell HUD-insured
      mortgages.

 h.   OLALSR: The Office of Lender Activities and Land
      Sales Registration located in HUD Headquarters.
      Henceforth, "OLA," or "Office of Lender
      Activities."

i.   Participating mortgagee: A mortgagee that holds a
     partial interest in a HUD-insured loan; it is
     either an approved mortgagee or a corporation,
     trust, or organization that certifies to the
     principal mortgagee that it has assets of $100,000
     or more and that it has lawful authority to
     acquire a partial interest in an insured mortgage.

j.   Principal mortgagee: An approved mortgagee that
     transfers a partial interest in an insured
     mortgage that it holds to another approved
     mortgagee or to a qualified participating
     mortgagee as defined above.

k.   Servicing mortgagee: An approved mortgagee or
     agent that is employed by the mortgagee holding a
     HUD-insured mortgage to do certain services on its
     behalf. These services may vary according to the
     agreement between the parties. The actions of any
     servicer will be considered by HUD to be the
     actions of the approved mortgagee holding the
     mortgage. A servicing mortgagee also may be the
     investing or holding mortgagee that has been
     specifically approved by OLA for servicing.

l.   Special purpose mortgagee: There are two types of
     special purpose mortgagees:
            (1)   Public Housing Agencies for originating and
                  holding insured project mortgages funded by
                  issuance of tax exempt obligations of the
                  agency.

            (2)   State Housing Agencies or insured depository
                  institutions as defined in Section 244(g)(5)
                  of the National Housing Act for originating
                  and holding coinsured project mortgages
                  pursuant to Section 244 of that Act.

       m.   Supervised mortgagees:   There are two types of
            supervised mortgagees:

            (1)   Members of the Federal Reserve System (FRS)
                  and institutions insured by the Federal
                  Deposit Insurance Corporation (FDIC) or the
                  National Credit Union Administration (NCUA).


            (2)   Other institutions, including affiliates of
                  mortgagees supervised by the Comptroller of
                  the Currency, that are subject to the
                  inspection and supervision of a government
                  agency that is required by law to make
                  periodic examinations of its books and
                  accounts.

                  If a supervised mortgagee becomes an approved
                  mortgagee it may submit applications for the
                  insurance of mortgages and may purchase,
                  hold, service, and sell HUD-insured
                  mortgages.

1-3.   Purposes of servicing loans. A mortgage banker has two
       principal reasons for being in business: To originate
       loans (thereby making a profit from the loan
       origination fees and points) and to have an annuity in
       the form of a servicing portfolio. Of these two the
       latter is usually the more significant for most
       lenders. After the loan is closed and finally endorsed
       for mortgage insurance, it is usually sold by the
       originating lender. The loan may be sold as a "whole
       loan," transferring to the new owner all the former
       mortgagee's rights. It also may be sold on a
       "servicing retained" basis, where the seller retains
       the right to service the account for the investor.
       Retaining servicing rights or acquiring servicing
       rights from an investor represents a predictable future
       income stream for the loan servicer.

1-4.   Servicers are usually paid a percentage of the monthly
       loan installment by the holder of the mortgage when the
       servicer provides a full range of loan administration
       services, such as collecting payments from the
       mortgagor, analyzing tax and insurance escrow
       requirements and maintaining such escrows, ensuring the
       preservation of physical security by conducting
       physical inspections, and by determining that adequate
       insurance is always in effect. In other instances the
       holding mortgagee may contract with an agent for more
       limited servicing activities, such as conducting the
       required annual physical inspections of the physical
       security (the HUD Project). It might do so because the
       agent may have been the originating mortgagee, commonly
       located closer to the project than is the investor.
       Fees are usually earned in such instances according to
       a mutually agreed fee schedule.

       An additional source of revenue for the servicer is the
       float -- the use of the funds from the time they are
       received from the mortgagor until the funds must be
       remitted to the investor. Remittances to investors may
       be required daily, weekly, or monthly; such
       requirements are a matter for the investing and the
       servicing mortgagee to decide. For instance, mortgage-backed
       securities require only a monthly remittance to
       certificate holders. Mortgage servicing, then, can be
       a profitable endeavor, particularly when servicing
       costs are minimized.

1-6.   The investing mortgagee, the servicing mortgagee, the
       mortgagor, and HUD unite to form a team whose goal is
       to provide an adequate supply of affordable housing for
       our nation. This housing is, of course, to be provided
       on a nondiscriminatory basis. As with any team, the
       extent of cooperation among its members is as important
       to achieving success as are the skills of each member.
       The formal relationships among the members of the
       housing team are contractually controlled, but the
       day-to-day relationships are complex, diverse, and
       sometimes conflicting. By way of example, mortgage
       interest rates are ordinarily established by market
       forces. Mortgagors and builders need low interest
       rates to increase their profitability when developing
       or owning a project (or to keep rental rates lower for
       non-profit mortgagors) while lenders need interest
       rates that are higher than their costs of attracting
       capital. The higher the point spread between a
       lender's cost of capital and the interest rate it
       charges a borrower, the greater its profit margin. But
       high interest rates are ultimately passed on to the
       individual consumer, whether a tenant of a rental
       project or an occupant of a unit under a cooperative or
       a condominium form of ownership. When the interest
       rate is high the debt service burden is greater than
       when the interest rate is lower; this results in
       housing available to a smaller segment of society than
       if interest rates were lower.

1-7.   HUD Provides assistance through interest subsidies as
       in the cases of the Section 236 program or the Below
       Market Interest Rate (BMIR) program under Section
       221(d)(5). Here the benefits of the subsidized
       mortgage accrue directly to the mortgagee and mortgagor
       and indirectly to the occupants of the units. In other
       instances HUD may choose to provide project-based
       subsidies in the forms of rental assistance under the
       Section 8 program or other similar programs. Here the
       benefits of the subsidy accrue more directly to the
       tenants and the mortgagors and indirectly to
       mortgagees.

1-8.   Through the various programs of multifamily mortgage
       insurance, HUD eases the flow of capital from lenders
       to borrowers by enabling loans that have lower equity
       requirements for borrowers than loans that are
       conventionally financed. Non-recourse loans stimulate
       borrowers to borrow money to develop and own projects;
       lenders, limited exposure to loss further stimulates
       lending. By acting as the mediator when many inherent
       conflicts between the mortgagee and the mortgagor
       arise, HUD protects its interests as the insurer of the
       loan and attempts to improve the working relationships
       among the other team members.

1-9.   HUD's relationship with the mortgagor involves many
       duties and responsibilities for both HUD and the
       mortgagor. While protection of the contingent
       liability of the Secretary is paramount in all asset
       management (project servicing) activities taken by HUD,
       the Department exercises care to prevent undue,
       unwarranted, or unauthorized intervention in the
       affairs of the mortgagor. The terms of the Mortgage,
       Regulatory Agreement (or Charter), Mortgagor's
       Certificate, and the provisions of HUD handbooks set
       forth the rights and responsibilities of both parties.
       HUD fosters good project servicing by providing
       friendly and cooperative assistance to the mortgagor,
       but the business relationship between HUD and the
       mortgagor demands strict adherence by both parties to
       the full discharge of their duties.

       a.   Among many asset management (project servicing)
            duties, HUD is responsible for authorizing
            releases from the Reserve Fund for Replacements
            and Residual Receipts escrow accounts, for
            authorizing alterations, modifications, or
            additions to physical structures, for authorizing
            partial releases of security and changes in
            ownership, and for establishing rental rates in
            most projects.


       b.   HUD also may intercede with the mortgagee on
            behalf of the mortgagor when asked to do so by the
            mortgagor. It is the practice of HUD to keep the
            mortgagee informed about asset management actions
            taken by HUD or requested by the mortgagor.

       c.   HUD conducts management reviews of most projects
             and gives the owner advice and guidance on the
             management and operations of projects.

        d.   By these actions HUD attempts to protect the
             physical security of the project, to preserve the
             financial soundness of the mortgagor, and to
             assure that the tenants have safe, sanitary, well
             maintained musing. In exchange for these
             benefits, the mortgagor agrees to provide HUD with
             audited annual financial statements, to provide
             for the effective management and maintenance of
             the project, and to comply with other program
             requirements.

1-10.   Both the investing and the servicing mortgagees
        exercise direct control over the mortgagor through the
        Mortgage and the Note and indirect control (with the
        involvement of HUD) under the Regulatory Agreement.
        Mainly because the Regulatory Agreement is an agreement
        between the mortgagor and HUD, mortgagees have
        traditionally considered enforcement of its provisions
        a matter between HUD and the mortgagor. Similarly,
        because the Note and the Mortgage are agreements
        between the mortgagor and the mortgagee, mortgagees are
        chiefly responsible for obtaining compliance with the
        covenants of these instruments. Mortgagors typically
        interact with only the servicing mortgagee; mortgagors
        may often not even know that a mortgagee other than the
        servicing mortgagee is involved. Some major controls
        exercised over mortgagors by mortgagees include the
        following restrictions:

        a.   The mortgagor must Pay sums due under the
             controlling instruments to the mortgagee, must
             maintain the Physical condition of the Property,
             and must use it as intended.

        b.   The mortgagor must keep fire and other hazard
             insurance in force.

        c.   The mortgagor must furnish audited annual
             financial statements to the mortgagee.

        d.   The mortgagor will not permit the creation of
             other liens, inferior or superior.

1-11.   The mortgagee, on the other hand, has several
        obligations to the mortgagor. For instance,

        a.   The mortgagor must prepare and submit to HUD and
             to the mortgagee audited annual financial
             statements, usually within sixty days after the
             end of its fiscal year. Accordingly, the
             mortgagee must furnish the mortgagor with
             confirmations of the account in time for the
             mortgagor to fulfill its responsibilities.
        b.   The mortgagee must permit the investment of the
             mortgagor's money held in the Reserve Fund for
             Replacements and the Residual Receipts trust
             accounts.

        c.   The mortgagee should analyze tax and insurance
             escrow account requirements with sufficient
             accuracy so that there are sufficient funds held
             in escrow to pay sums due at least one month
             before the date such sums would become delinquent
             while taking care that excessively large surpluses
             do not accrue.

        d.   The mortgagee must provide the mortgagor a
             Satisfaction of Mortgage upon full payment of the
             Note, its interest, money advanced, late charges,
             commissions, etc.

1-12.   The mortgagee/mortgagor/HUD relationship is
        interdependent. Effective teamwork is essential when
        certain forms of financial relief are being considered.

        a.   For example, HUD and the mortgagee must jointly
             decide and may agree to modify an existing insured
             Note and Mortgage upon a request from the
             mortgagor; if the mortgage is to be modified,
             neither HUD nor the mortgagee may do it alone.

             b.   The parties must reach a similar understanding for
                  the holding and servicing mortgagees to hold a
                  mortgage under a workout arrangement proposed by a
                  mortgagor whose mortgage is in default. For
                  instance, if HUD should decline to extend the
                  deadline for the investing mortgagee's assignment
                  election, a portion of the mortgagee's insurance
                  benefits could be jeopardized if the deadline
                  passes without making the election decision.

             c.   The mortgagees and HUD also must work together
                  when approving requests from mortgagors for
                  transfers of physical assets, partial releases of
                  security, property insurance loss drafts, and in
                  countless other ways. For another example,
                  mortgagees occasionally receive requests from
                  mortgagors for the mortgagee to permit secondary
                  financing. When the proposed secondary financing
                  is to be provided by State Finance Agencies or by
                  the National Cooperative Bank, HUD and the
                  mortgagor would be appreciative if the mortgagee
                  processes these requests with minimal charges to
                  the mortgagor.

             d.   Mortgagees and HUD must work together when there
                  is a monetary or covenant default of the mortgage
                  or Regulatory Agreement. If there is a mortgage
                  default the mortgagee most interact with HUD to
                  ensure that it meets all regulatory requirements
              for declaring a default, electing to assign the
              mortgage, and in seeking extensions of deadlines.
              If there is a default under the Regulatory
              Agreement the mortgagee must cooperate with HUD if
              HUD requires the mortgagee to accelerate the
              mortgage.

  1-13.   The ultimate responsibility for mortgage servicing
          rests with the holding mortgagee and it cannot be
          delegated to anyone. Servicing tasks, however, may be
          accomplished under a contractual arrangement between
          holding mortgagees and servicers. HUD does not enter
          or intervene in these contracts. Essentially, the
          investing mortgagee pays the servicing mortgagee to
          provide an array of services to the mortgagor.
          Investors want low delinquency ratios on their
          portfolios. Investors may be somewhat more inclined to
          assign a defaulted mortgage to HUD than might the
          servicer, who loses the servicing income for that
          mortgage upon assignment. On the other hand, troubled
          accounts have a much more intensive level of servicing
          efforts with a corresponding increase in servicing
          costs. Servicers typically conduct a wide range of
          activities for their investors. Servicers provide the
          liaison between the investor and the mortgagor as well
          as between the investor and HUD. Mortgagors almost
          never deal with their investors directly. HUD, on the
          other hand, communicates directly with both investors
          and servicers.


                     Section 2.   Applicability

1-14.   The following Table shows the Sections of the Act to
        which this handbook applies. (Reminder: Operating
        Loss loans are insured under the mortgage insurance
        program of the underlying first mortgage.)

              Table 1.   Mortgage Insurance Programs

Section
Number             Program Description
_______            _____________________

207M               Mobile Home Courts
207                Multifamily Rental Housing, Pre-War
                   Legislation
207                Formerly HUD-held Mortgages Sold
                   with Insurance
207/223(c)         Formerly HUD-owned Projects
213S               Sales and Investor Cooperatives
213M               Management Cooperatives
213(i)             Consumer Cooperative
220                Urban Renewal/Declining Area Rental Housing
221(d)(3)          Market Rate, Moderate Income Families
221(d)(4)          Market Rate, Moderate Income Families
221(d)(5)          Below Market Interest Rate (BMIR)
221(h)              Rehab. Sales Projects
223(e)/220          Rehab./Refinance Existing, Declining
                    Neighborhood
223(f)/207          Purchase/Refinancing Existing Housing
231                 Housing for the Elderly
232                 Nursing Homes, Intermediate Care Facilities
233                 Experimental Housing
236                 Housing for Lower Income Families
241                 Supplemental Loans (Capital
                    Improvement/Equity Takeout)
242                 Hospitals
Title XI            Group Practice Facilities

1-15.   All investing mortgagees and servicing mortgagees
        holding or servicing mortgages finally endorsed under
        any of the Sections of the Act shown in Table 1 are
        subject to the provisions of this handbook. Other
        multifamily mortgage insurance programs may be added
        from time to time; mortgagees involved in these
        programs will be subject to this handbook unless
        specifically and expressly excluded.

                     Section 3.   Mortgage Servicing, General Guidance

1-16.       This handbook establishes certain minimum mortgage servicing
            requirements and standards. It also describes other
servicing
            duties and responsibilities that, though only recommended,
HUD
            believes to be necessary for the effective and acceptable
servicing
            of mortgages.   It provides some refinements to the existing
general
            practices of the Department regarding loan administration
            activities for insured mortgages, and emphasizes which of the
            Department's policies and regulations regarding the servicing
of
          single-family mortgages also pertain to multifamily mortgage
          insurance programs. In one source, it formalizes many
procedures
          established by various Mortgagee Letters, Notices, and other
          instructions issued over the years.

1-17.     Regulatory Authority. The underlying regulations for
servicing
          practices for all multifamily mortgage insurance programs are
in
          Title 24 of the Code of Federal Regulations in Part 207.
Some key
          sections are below.

            a.   Section 207.2 subjects fees and charges to mortgagors by
                 mortgagees to HUD approval.

            b.   Section 2072.3 provides for mortgage provisions to be
                 contained in a form of mortgage approved by HUD.
            c.   Section 207.13 establishes the application of payments
                 received from mortgagors.

            d.   Section 207.14(c) allows the assessment of Late Charges.

            e.   Section 207.19(b)[i](B) addresses the Reserve Fund for
                 Replacements.

            f.   Section 207.22 incorporates the provisions of Section
202.11
                 through 202.14 and 202.16 through 202.19 by reference to
                 govern the eligibility, qualifications, and requirements
of
                 mortgagees under Subpart A of Part 207.

                                    1-13                             12/95
4350.4 CHG-6

            g.   Section 202.12(f) requires compliance with servicing
                 responsibilities found at Part 207. Section 202.12(f)
also
                 requires compliance with all other applicable
regulations
                 contained in Title 24 and with such other additional
                 conditions and requirements as HUD may impose.

Section 4.    Mortgagee Monitoring, General Procedures

1-18.       This handbook sets forth the practices and responsibilities
for
            conducting reviews of approved multifamily mortgagees, and
agents.
            HUD reviews mortgagees' procedures to assure their compliance
with
          HUD regulations and handbook requirements when servicing HUD-
          insured multifamily mortgages. When HUD conducts an on-site
          mortgagee review, HUD shall monitor mortgagee servicing
practices.

            a.   HUD will determine the mortgagee's compliance with the
                 requirement to conduct quarterly rating reviews of
banking
                 institutions where there are escrows in excess of
$100,000.
                 If the mortgagee has not performed the required rating
reviews
                 at institutions where there are deposits in excess of
                 $100,000, the mortgagee shall be cited as being in
                 noncompliance and will be subject to sanctions if the
                 situation is not corrected immediately. In addition,
the
                 mortgagee should be reminded that in the event the
required
                 rating review is not completed, and the banking
institution
                 fails, the mortgagee is expected to replace any lost
funds.
          b.   If the mortgagee fails to conduct the required rating
review.
               HUD will use all available remedies to recover whatever
funds
               are lost as a result of the failed institution and the
               mortgagee's failure to replace the lost funds.

1-19.     Mortgagee reviews are mandatory.   Remote monitoring reviews
are
          conducted by HUD Field Office Housing Management staff.
Housing
          Management personnel monitor mortgagee servicing practices
to:

          a.   Open and maintain communications between the
               mortgagee's staff and HUD's staff.

          b.   Improve the mortgagee's performance through
               technical assistance.

          c.   Assure timely and proper servicing of mortgages so
               that unnecessary claims against the insurance
               funds do not result.

          d.   Decide the degree of compliance with HUD servicing
               requirements by examining the mortgagee's
               servicing policies, practices, and procedures and
               their results.

          e.   Protect HUD's interest by detecting, reporting,
               and preventing fraud, waste, and mismanagement.

          f.   Identify mortgagees to recommend to the Inspector
               General for possible audits.

          g.   Identify mortgagees that the Mortgagee Review
               Board should consider for the imposition of
               sanctions. These sanctions include:

               1.   Reprimand
               2.   Probation
               3.   Suspension
               4.   Withdrawal of Approval
               5.   Civil Money Penalties

1-20.     The Loan Management Branch staff in HUD Field Offices
          make in-house "remote" reviews of mortgagees'
          practices. An example of one such activity is
          monitoring the receipt of annual physical inspections
          due HUD from mortgagees and comparing the findings of
          these physical inspections with other known project
          information. Another example is identifying compliance
          with mortgagees' reporting of mortgage delinquencies
          and defaults. The Loan Management Branch Chief
          provides the final results of the remote monitoring
          review to:
        a.   The Mortgage Credit Branch Chief of the Field
             Office as a courtesy and for his information.


        b.   The Regional Director of Housing. The Regional
             Director of Housing reviews the results of these
             reviews and forwards sanction recommendations to
             the Director, Office of Multifamily Housing
             Management (Attn: Operations Division) in HUD
             Headquarters.

1-21.   The Office of Lender Activities (OLA) has the task of
        referring cases of serious mortgagee infractions to the
        Mortgagee Review Board or the Housing Civil Money
        Penalties Panel for the imposition of sanctions. OLA,
        in the capacity of Secretariat for the Board and the
        Panel, receives sanction recommendations from the
        Multifamily Housing Management Operations Division.

1-22.   The Mortgagee Review Board and the Housing Civil Money
        Penalties Panel have sole authority for the imposition
        of sanctions against insured (as opposed to co-insured)
        multifamily mortgagees.
                                                        4350.4 CHG-7

         CHAPTER 2.   LOAN ADMINISTRATION: RESPONSIBILITIES OF MORTGAGE
                         SERVICING

                               Section 1.   Introduction

2-1. A successful mortgage loan servicing department is one that
     achieves both corporate policy objectives and departmental goals.
     Basic corporate objectives include maximizing interest revenue and
     reducing risk. Reducing risk includes assuring that the property
     is maintained in good physical condition for the use and enjoyment
     of its tenants. More specific loan servicing department goals are
     to minimize servicing costs and to build goodwill with customers
     and the public. Another goal is to provide an effective training
     program for its personnel.

2-2. Maximizing revenue. Loan servicing staff must maintain careful
and
     thorough supervision over loans they service and must impress the
     borrower with the importance of repaying the loan according to the
     provisions of the agreement. Borrowers' prompt and full payment
of
     their monthly obligations allows the lender to recoup its initial
     investment on schedule; it also allows the lender to maximize the
     yield on its investment by having the funds available for re
     investment in new mortgages. There are two basic principles for
     maximizing interest revenue: 1) obtain the revenue as quickly as
     possible; 2) reinvest the income. When servicing loans for other
     lenders or investors, float is another method of maximizing
     revenue. Float is a result of the unequal timing between the
     receipt of monthly payments from mortgagors and the servicer's
     disbursement of these payments to the mortgage investor and to
     other parties. The cash involved in the float can often be held
in
     short term investments for the benefit of the servicer.
Obviously,
     the earlier the funds are collected, the greater the revenue from
     the' float.

2-3. Reducing risk. Even with the protection of HUD's mortgage
     insurance, a lender is vulnerable to possible loss on every
     mortgage loan it makes or buys. Loss can result from property
     deterioration, from unpaid tax assessments or insurance bills, and
     from delinquent payments. Loss also can occur through deductions
     from mortgage insurance claims. To reduce the risk of incurring
     these types of losses, the loan servicing staff should keep
     accurate records and adhere unfailingly to the details of a
follow-
     up system.


    a.   For illustration, the person responsible for   monitoring real
         estate taxes must keep track of the property   taxes assessed
         and paid on each mortgaged property. Though    the lender holds
         a first lien on the property, an unpaid real   estate tax
            usually creates a prior lien on the property.   If the tax
bill
            remains unpaid for a specified period, the taxing authority
            can force a sale of the property. The proceeds of a sale
will
            be used to pay the real estate taxes, and the lender might
            receive nothing applicable to the mortgage debt. While this
            is important to the mortgagee and the mortgagor when
            unsubsidized projects are involved, it is of paramount
            importance to HUD and the tenants if the project is
            subsidized. All four parties risk the loss of assisted
            housing in the event of such a tax sale.

       b.   Mortgagees also reduce risk by making certain that each
            mortgaged property has insurance against loss because of
fire,
            wind, explosion, other hazards, and sometimes floods.
            Unrepaired damage might reduce the value of the mortgaged
            property to less than the mortgage loan balance. If adequate
            insurance is in force, the mortgagor can repair the project
            promptly and the value of the project will remain stable.

2-4. Minimizing costs of servicing. Operating profitably is a goal of
     every servicing department. Servicing personnel help reduce
     expenses by doing their jobs efficiently. Cooperation with other
     departments, such as accounting and data processing, also
increases
     efficiency. The cost of servicing each mortgage loan includes
     salaries, physical inspections of properties, postage, computer
     facilities, telephone, floor space, and supplies. Many of these
     costs increase when loans become delinquent. A program of
     preventive servicing designed to keep loans current can help
     control the variable costs.


                                 Section 2.   Fiduciary Responsibilities

2-5. FIDUCIARY: The term is derived from Roman law and means (as a
     noun) a person holding the character of a trustee in respect to
the
     trust and confidence involved in the trust and the scrupulous good
     faith and candor that the trust requires. One acts in a
"fiduciary
     capacity," or receives money or contracts a debt in a "fiduciary
     capacity," when the business that he transacts or the money or
     property that he handles is not his own or for his own benefit but
     for the benefit of another person as to whom he stands in a
     relation implying and necessitating great confidence and trust on
     the one part and a high degree of good faith on the other part.
     Out of a fiduciary relation, the law raises the rule that neither
     party may exert influence or pressure upon the other, take selfish
     advantage of this trust, or deal with the subject matter of the
     trust in such a way as to benefit himself or prejudice the other
     except in the exercise of the utmost good faith and with the full
     knowledge and consent of that other. Business shrewdness, hard
     bargaining and astuteness to take advantage of the forgetfulness
or
    negligence of another are totally prohibited between persons
    standing in a fiduciary relationship to one another.

2-6. Servicing mortgagees have three sets of fiduciary relationships.

    a.     First, and perhaps most important, is their fiduciary
           responsibility to mortgagors. The covenants of the mortgage
           instrument itself establish this relationship. One must
           notice the implications contained in the title, "Deed of
           Trust." In this capacity the servicer must, among other
tasks:

           1.   Collect funds from the mortgagor and apply those funds
                properly.

           2.   Analyze escrow accounts accurately.

           3.   Pay taxes on time to maximize available discounts.

           4.   Invest certain escrowed funds (Residual Receipts,
Reserve
                Funds for Replacements) if requested by the mortgagor to
                do so.

           5.   Provide information to the mortgagor, e.g., annual
                statements of account, on time.


    b.     Second, the servicer is responsible to the investing
           mortgagee. The servicing contract between the two parties
           customarily establishes the relationship. The servicer
           usually:

           1.   Remits funds to the investor as they become due.

           2.   Protects the physical security by maintaining adequate
                hazard and other forms of insurance.

           3.   Protects the physical security by conducting thorough
                physical inspections of the project each year.

           4.   Maintains a low default ratio through strong collection
                efforts and by analyzing mortgagors' annual financial
                statements and monthly accounting reports when the
latter
                are applicable.

           5.   Provides periodic reports on the status of loans it is
                servicing for the investor.

    c.     Third, the servicing mortgagee is responsible to HUD:

           1.   It must pay the Mortgage Insurance Premium (MIP) when
                due.

           2.   It must inform HUD of changes in its address, of
mortgage
                 insurance terminations, and of many of other items.

            3.   It must furnish HUD a copy of its annual Physical
                 Inspection Report of the project in a format acceptable
                 to HUD.

            4.   It must keep adequate property insurance in force.

            5.   It must have and use a Quality Control Plan for
servicing
                 mortgages.

            6.   It must not permit prepayment of, or voluntary
                 termination of mortgage insurance on, mortgages on
                 certain low-income projects without HUD's prior
approval.

            7.   It should make every effort to provide HUD Field Offices
                 and HUD Headquarters with a delinquency alert for
                 mortgagors that have not paid their payments by the


                 fifteenth of the month.

2-7. SERVICING MORTGAGEES ARE PIVOTAL MEMBERS OF THE HOUSING TEAM!
     Servicers make enormous contributions which, when combined with
the
     efforts of their borrowers, investors, and HUD, help preserve and
     protect the housing stock of this nation.

    a.      Their obligations to other agencies or parties, such as FDIC,
            may exist but these obligations are beyond the scope of this
            handbook.

    b.      The remaining sections of this Chapter contain specific
            servicing tasks and procedures that, if followed, should
            enable the satisfactory and profitable fulfillment of
            servicing responsibilities.

                                    2-5                            6/96
4350.4 CHG-7

             Section 3.   Quality Control Plans and Credit Management

2-8. The Department of Housing and Urban Development requires all
     mortgagees servicing insured multifamily project mortgages to have
     a Quality Control Plan. On December 26, 1989, HUD issued
Mortgagee
     Letter 89-32 entitled, "Quality Control Plan for Approved
     Mortgagees (see Appendix 7)." The provisions of this Mortgagee
     Letter are incorporated in the requirements of this handbook and
     will not be restated here. But the primary objectives of the
     quality control plan are to assure:

    a.      Compliance with HUD requirements.

    b.      That the mortgagee's employees know and follow its policies
            and procedures.

       c.   That the mortgagee revises its procedures as changes in HUD's
            requirements occur.

       d.   That employees of the mortgagee are accountable for
            performance failures and errors.

     e.     That the mortgagee identifies deficiencies in servicing,
takes
            prompt and effective corrective action, and so informs its
            affected employees.

       f.   That procedures exist for expanding the scope of quality
            control reviews where the mortgagee identifies fraudulent
            activity or patterns of deficiencies.

2-9. Many instructions contained in Mortgagee Letter 89-32 are germane
     to servicing only home mortgages: many are used for multifamily
     servicing as well. This Mortgagee Letter should be construed to
be
     included in the servicing requirements of this Chapter 2.
     Mortgagees servicing insured multifamily project mortgages must
     develop Quality Control Plans that include servicing these
     mortgages.

2-10.There are a number of principles that belong to an effective
program for
     sound credit management, which is essentially a strategy for
     controlling account servicing, portfolio management, and
delinquent
     debt collection. Servicing and investing mortgagees should give
     consideration to these concepts as they develop and implement
their
     own internal policies and procedures.

       a.   Billing Practices. Mortgagees should ensure that there is
            routine invoicing of payments due. Usually this invoicing
will
            be done monthly.


            Invoices should include the date the payment is due and the
            date it will be considered late (i.e., grace period).

       b.   HUD's regulations at 24 CFR 207.14(c) permit mortgages to
            provide for the collection by the mortgagee of a late charge,
            not to exceed two (2) cents for each dollar of each payment
to
            interest or principal more than fifteen (15) days in arrears,
            to cover the expense involved in handling delinquent
payments.
            Late charges, if assessed, shall be separately charged to and
            collected from the mortgagor and shall not be deducted from
            any aggregate monthly payment or from any other funds of the
            mortgagor received or held by the mortgagee for any other
            purpose.
       c.   Documentation.   Insured loan files should contain adequate
and
            current information reflecting payment history. They shall
            include all occurrences of delinquencies and defaults. They
            shall include any loan actions that result in payment
            deferrals or rescheduling. Mortgagees should record the time
            and outcome of each contact with the mortgagor; they should
            include notification of delinquent status, requests for
            repayment, and steps taken for delinquent debt collection.
            Mortgagees are urged to keep in a secure place accurate
            documentation and records pertaining to HUD authorized
            releases from the Reserve Fund for Replacements and the
            Residual Receipts Fund. Failure to do so could adversely
            affect the amount HUD pays in mortgage insurance if a claim
is
            made.

       d.   Credit Reporting Agencies. Mortgagees should have agreements
            with credit reporting agencies for the transfer, storage,
            protection; and dissemination of account information. All
            commercial accounts (current and delinquent) should be
            reported to commercial credit bureaus. Commercial accounts
are
            not covered by the Privacy Act. Mortgagees need adequate
            accounting systems to identify and to refer debts to a credit
            bureau.

       e.   Delinquent debt collection. Mortgagees should establish
            procedures for following up on past due accounts. These
            procedures might provide for as many as three progressively
            stronger written demands for payment issued at not more than
            20-day intervals. Lenders


            should adopt more aggressive collection techniques if the
            debtor's response to the initial notice provides evidence
that
            additional notices will not be effective.

       f. Risk Assessments and Loan Loss Estimates. To have a full and
          accurate picture of the financial condition of each
portfolio,
          mortgagees should assess the probability that existing loans
          might not be repaid. Lenders ought to estimate the losses
          that could be incurred. This recommendation applies to
          holding mortgagees and to servicing mortgagees. Lenders are
          advised to establish procedures for assessing the risk
          inherent in each loan in their portfolios.
          (REMINDER: HUD Regulations state, at 24 CFR 207.262, "Neither
          the mortgagee nor the mortgagor shall have any vested or
other
          right in the General Insurance Fund.")

            1.   A risk rating can be assigned to each loan. The rating
                 could reflect changes in the borrower's financial
                 position and changes in the status of col lateral or
                 security. The system of classification maintained by the
                 Comptroller of the Currency is one recommended rating
                 system.

            2.   HUD requires project owners to submit audited financial
                 statements each year to the mortgagee and to HUD. HUD
                 analyzes these financial statements to assess compliance
                 with program requirements, to evaluate the financial
                 strength of the mortgagor, to consider requests for rent
                 increases, and for many other purposes. Lenders need not
                 and should not review these financial statements from
                 HUD's perspective. Lenders should conduct their
                 examination to the extent necessary to classify asset
                 values and make risk assessments. Servicing mortgagees
                 should write the mortgagor, with a copy of the request
to
                 the Loan Management Branch of the HUD Field office, and
                 request the audited financial statement if the mortgagor
                 does not submit the audited financial statement when
due.


            3.   HUD regulations require annual physical inspections of
                 projects by mortgagees and submission of the physical
                 inspection reports to HUD and the mortgagor. These
                 inspections must be of a sufficiently high quality to
                 permit an accurate evaluation of the condition of the
                 property by the mortgagee and by HUD. This annual
                 inspection, combined with any other inspections made by
                 the mortgagee, would provide part of the basis for
                 evaluating and classifying a loan. The mortgagee, upon
                 the effective date of this handbook, shall set up a
                 schedule of physical inspections so that at least ten
                 (10) months but no more than twelve (12) months lapse
                 between the required annual inspections of any
particular
                 project.


                            Section 4.   Routine Servicing

2-11.There are eight basic functions in servicing multifamily mortgages
     insured by HUD:

       1.   Servicing loan payments.
       2.   Servicing escrow accounts.
       3.   Servicing real estate taxes.
       4.   Servicing insurance.
       5.   Servicing contract changes.
       6.   Servicing HUD requirements.
       7.   Servicing delinquent loans.
       8.   Making mortgage insurance claims.

       This Section 4 contains procedures for the first five topics.
       Sections 5, 6, and 7 of this chapter 2 address the remaining three
       topics.
2-12.Servicing loan payments. When the loan closes and is finally
endorsed
          for mortgage insurance, servicing usually becomes the
          responsibility of the commercial loan servicing department.
          Loan administration staff should immediately inform the
          mortgagor exactly what is expected of it. The servicer
should
          do this with a separate, written instruction sheet. The
          mortgagee must tell the mortgagor clearly what the monthly
          payments are, that payments are the mortgagor's
          responsibility, and that they are due on the first of the
          month until the loan is paid in full.

     a.   Mortgagees should be especially careful of the first
payments.
          If these payments are not in on the first of the month,
          mortgagees should have a follow up procedure to obtain
          payments promptly. Mortgagees must consider, based on their
          Risk Analyses, how they will follow up on payments that are
          not received. Mortgagees should have a written plan
available
          for their employees to follow and for HUD to review when
          requested. Mortgagees should consider relationships between
          mortgagors and management agents when the latter are
involved.
          Perhaps a direct telephone call from the mortgagee to a
          project's management agent would prove to be the best method
          of communication.

      b.   The mortgagee should be polite but firm when discovering why
           the payment did not arrive on the first.

           1.   Was it mailed to the correct address?
           2.   When was it mailed?


           3.   Is it in the possession of the mortgagee, perhaps in a
                mail room, but not in the loan administration
department?
                If so, what internal changes should be made so that
                inappropriate contact with the mortgagor is avoided?
           4.   Was it sent to but not processed by a lock-box?
           5.   Who is at fault, the mortgagor or the mortgagee?

      c.   If the mortgagee has the payment by the first of the month
but
           has not posted it by the second, the mortgagee has a problem
           that needs to be solved. But if the problem lies with the
           borrower, the best time to correct it is in the earliest days
           of amortization.

      d.   Projects are often managed for mortgagors by managing agents.
           If the late payment is not the fault of the mortgagee, the
           mortgagee should call the agent first. The mortgagee should
           inform the agent that the owner will be called if a second
           call is needed; this would enable the owner to deal with the
           managing agent. The mortgagee should impress on both the
            agent and the owner the importance of the regard for the
            mortgage obligation, and let both know, politely but firmly,
            that the mortgagee will not put up with late payments. The
            "grace" period is only a courtesy. Payments are due on the
            first.

    e.      Payments are applied as set forth in the mortgage and
            Regulatory Agreement, normally:

            1.    Mortgage Insurance Premium (MIP) escrow.
            2.    Ground rents.
            3.    Taxes.
            4.    Special assessments.
            5.    Water rates.
            6.    Property insurance premiums.
            7.    Interest on the note.
            8.    Amortization of principal.
            9.    Reserve Fund for Replacements.
            10.   Other reserves required by HUD.

    f.    The mortgagee must segregate escrow funds and deposit such
          funds in a special account with a financial institution whose
          accounts are insured by the FDIC or NCUA. Funds held in the
          escrow accounts may
          be held in accounts exceeding $100,000 per banking
institution
          under the following conditions:

            1.    Mortgagees must determine that the banking institution
                  has a rating consistent at all times with current
                  minimally acceptable ratings as established and
published
                  by Government National Mortgage Association (GNMA)

            2.    Mortgagees must monitor the banking ratings no less than
                  on a quarterly basis and change institutions when
                  necessary. The mortgagee must document the ratings of
                  institutions where escrow funds are deposited and
                  maintain the documentation in the administrative record
                  for three years, including the current year.

            3.    If the mortgagee does not perform the required quarterly
                  review at banking institutions where there are deposits
                  in excess of $100,000 and does not maintain the funds in
                  a banking institution with a rating consistent with
                  current minimally acceptable ratings as established and
                  published by GNMA, and the institution fails, the
                  mortgagee is held responsible for replacing the funds.
                  In addition, the mortgagee shall be subject to
sanctions.
                  In the event the mortgagee fails to replace the lost
                  funds, HUD will seek all available remedies, including
                  those against the mortgagee, to recover whatever funds
                  are lost as a result of the failed institution.

    g.      A mortgage is considered current if the mortgagor remits
            enough money to cover items 1 through 8 in paragraph 2-12.e.
            above; failure to cover items 9 or 10 is a "covenant" or
            "technical" default under the terms of the Regulatory
            Agreement and is not a default under the mortgage. Note:
            Failure to pay a Late Charge is never a default. When the
            remittance of insufficient funds causes a technical default,
            the mortgagee should notify the Loan Management Branch Chief
            of the HUD Field Office by letter that the full payment was
            not made. The mortgagee should send this letter by the
            fifteenth day of the month during which the payment was not
            made.

       h.   If items 9 or 10 in paragraph 2-12 above remain uncovered
from
            the previous month, the mortgagee should apply the current
            month's
            payment first to items 1 through 8 due for the current month,
            then apply any remaining sums first to items 9 and 10 from
the
          prior month and then to items 9 and 10 due for the current
          month. The mortgagee should keep the HUD Field Office Loan
          Management Branch notified of the status of the Loan so HUD
          staff can act and assist the mortgagee in its debt collection
          efforts. HUD is very concerned whenever full payments are not
          made by project owners and HUD needs to be informed about
          fiscal and technical defaults as soon as they occur.
2-13.Servicing Escrow Accounts: General Considerations. To ensure that
funds
     will be available to pay taxes and insurance premiums, mortgagees
     must establish escrow accounts for the monthly payments that
     mortgagors must make.

       a.   Each month the mortgagee must collect from the mortgagor an
            amount which the mortgagee estimates will be sufficient to
            enable it to pay all escrow obligations prior to delinquency.
            These obligations are:

            1.   Mortgage Insurance Premiums.
            2.   Taxes, special assessments, ground rents.
            3.   Hazard insurance premiums.
            4.   Flood insurance premiums where required.

       b.   The mortgage instrument provides the authority for the
            mortgagee to accumulate sufficient escrow funds with which to
            pay the mortgagor's tax and insurance bills thirty days prior
            to the time the bills become delinquent. For example, tax
            bills are frequently due each year on January 1st. Here the
            mortgagee should have sufficient funds on hand as of December
            1st (assuming timely remittance and application of the
            mortgage payment due December 1st) to pay the tax bill on
            January 1st. HUD does not object to other accrual periods
            occasioned by variations in tax jurisdictions, particularly
            where the mortgagor may realize a savings. For instance,
            substantial discounts might be available if the taxes due
            January 1st were paid on November 1st. Here the mortgagee
            would need sufficient funds on hand as of October 1st to pay
            the discounted tax assessment by November 1st. The mortgagee
            should discuss these kinds of possibilities with the
mortgagor
            and make every effort to accommodate any reasonable request
            made by the mortgagor to obtain available discounts.

       c.   Escrow funds shall be used for only the purpose for which
they
            were collected. They are subject to audit and examination by
            HUD. Under no circumstances shall a lender use escrow funds
            for delinquent payments, late charges, or any other charges.

       d.   The restriction on escrow accounts is not intended to apply
to
            each escrow item as a separate entity but to the entire
escrow
            account. It is not necessary, for example, that funds
            collected for the payment of taxes be used only for the
            payment of taxes, although the mortgagee might so structure
            its accounts for bookkeeping purposes only. The intent of
the
            requirement is that the aggregate of funds collected for
            escrow items be sufficient to pay bills which are properly to
            be paid from the escrow account.

       e.   Mortgagees may not charge interest for escrow deficiencies.
            A deficiency exists only when there are insufficient funds to
            pay a tendered bill or an untendered bill thirty (30) days
            prior to the due date, whichever comes first.

       f.   HUD regulations neither forbid nor require that escrow
            accounts bear interest. HUD does not permit mortgagees to
            invest monies deposited in escrow accounts unless the net
            income is paid or credited to the account of the mortgagor.
            Net income is the earnings remaining after the expenses that
            are directly related to the investment of the monies and that
            are directly related to the servicing of the interest-bearing
            escrow accounts have been retained by the mortgagee.

       g.   Expenses may be calculated as they are incurred on an
            individual account basis or as they are incurred and applied
            against income derived from the mortgagee's entire portfolio
            of insured mortgages. Mortgagees, of course; need to examine
            their expenses regularly in a continuing effort to keep them
            at the lowest possible level.

       h.   If the income from the investment less actual administrative
            costs results in a net loss, such loss may not be passed on
to
            the mortgagor.
            Mortgagees' charges may not exceed actual costs for
            administering the interest-bearing account.

2-14.Escrow Analysis. Escrow analysis is a periodic review of escrow
     receipts and disbursements to decide whether the monthly deposits
     will provide adequate amounts to satisfy tax, insurance, and other
     obligations when they become due. Escrow requirements are first
     estimated by the time a loan is closed and the amount of the
       monthly payment is established.

       a.   It is the mortgagee's responsibility to make escrow
            disbursements before bills become delinquent. Mortgagees
must
            establish controls to ensure that bills payable from the
            escrow fund or the information needed to pay such bills is
            obtained on a timely basis. Penalties for late payments for
            items payable from the escrow account must not be charged to
            the mortgagor unless it can be shown that the penalty was the
            direct result of the mortgagor's error or omission. Early
            payment of a bill to take advantage of a discount should be
            made whenever it is to the mortgagor's benefit if sufficient
            escrow funds are available.

       b.   Not later than the end of the second loan year, the mortgagee
            shall establish a system for the periodic analysis of the
            escrow account. The mortgagee must make this analysis at
            least once annually and adjust the escrow payment to provide
            a sufficient accumulation of escrow funds to make anticipated
            disbursements during the following year.

       c.   The mortgagee must give the mortgagor at least sixty days
            notice of adjustments in monthly payments together with an
            adequate explanation of the reasons for any change.

       d.   The mortgagee shall refund to or collect from the mortgagor
            any escrow surplus or shortage as required by the security
            instrument. The mortgage typically contains a clause to
            credit an escrow surplus to subsequent monthly payments of
            escrows. The mortgagee may refund an excess to the mortgagor
            by a disbursement to the project's operating account; if it
            should choose to do so, it is strictly as a concession to the
            mortgagor and not as a right of or an expectation by the
            mortgagor. Good judgement might dictate that when the
            mortgagee's physical inspection indicates a need for
immediate
            action and when excess escrow funds exist, the
            mortgagee could release such excess funds to the mortgagor's
            operating account as needed repairs are made.

       e.   The mortgagee shall make its estimate of escrow requirements
            based on the best information available about probable
            payments that will be required from the account in the coming
            year. If it uses actual disbursements during the preceding
            year as the basis for making this estimate, the resulting
            estimate is allowed to deviate from those disbursements by as
            much as ten per cent if the previous year's expenses
indicated
            that a percentage of up to ten per cent for the second
            previous year was necessary. The mortgagee must keep in mind
            that the purpose of escrow analysis Is to assure that
adequate
            escrow balances are available at the time of billing and that
            excessive escrows do not adversely affect the mortgagor's
cash
            flow.
    f.   The mortgagee may carry over to the next period an escrow
         amount no greater than one-sixth in excess of the actual
         current requirements. The mortgagee must not hold larger
         amounts unless expressly requested by the mortgagor and
unless
         the need for a larger amount is adequately documented by the
         mortgagor.

    g.   The mortgagee should examine its own history of escrow
         surpluses or shortages to see if changes in its methods of
         analysis are needed.

2-15.Servicing taxes. The amount of the annual real estate tax bill
must be
     estimated from the best available source. When a loan is secured
     by an existing property, the amount of taxes can usually be
     estimated by multiplying the assessed valuation by the current tax
     rates. When a loan is secured by newly constructed improvements,
     the previous year's assessed valuation would have been on a
     different basis; using that basis would not be appropriate. In
     such a case, assessments of several similar properties, adjusted
     for variances, may provide a reasonably accurate estimate of
     valuation for establishing the required monthly tax deposit for
the
     first year or two of amortization.

2-16.Servicing insurance. HUD Regulations, at 24 CFR 207.10 and
207.260, are
     explicit about insurance requirements. The mortgagee must obtain
     insurance coverage if the mortgagor does not. HUD may terminate
     the mortgage insurance contract if insurance is not maintained.
     Mortgagees must notify HUD within thirty (30) days of the
     cancellation of insurance or of the refusal of the insurance
     company to renew the insurance. Mortgagors must carry fire and
     extended coverage insurance in an amount that meets the
coinsurance
     requirements of the insurer and is at least equal to 80 percent of
     the actual cash value of the project's insurable improvements and
     equipment. Mortgagee Letters 83-24 and 86-8 are in Appendix 7;
     these Letters provide additional information and requirements
about
     insurance and are incorporated in this paragraph by reference.

2-17.Servicing contract changes. The mortgage and the note contain the
     essential terms of the contract of indebtedness. The borrower,
the
     secured property, and the loan terms are the three basic elements
     considered in mortgage loan underwriting. If the loan applicant
     has a reliable income and a sound credit record, and if the
     property is a worthwhile investment, the institutional underwriter
     adjusts the loan terms (within limits) to balance several factors.
     These factors are (1) the borrower's budget and financial
     resources; (2) the property's useful life, and (3) the lender's
     need for a safe, profitable investment.

    a.   A later change in any one of the elements or factors can
           disrupt the balance. In certain cases, as when a small part
           of the project must be released from the mortgage security
for
           a public purpose, the lender has little choice. Such taking
           can be without the approval of the mortgagee or HUD. The
           responsibility remains with the mortgagee to keep informed
           about such condemnation proceedings to assure that claim for
           adequate compensation is instituted.

      b.   When the mortgagor desires to negotiate a partial release of
           security, the mortgagor must first obtain the written consent
           of the mortgagee. The mortgagee may require conditions and
           restrictions for its approval. HUD also must consider and
           approve, conditionally approve, or disapprove requests for
           partial releases of mortgage security. HUD frequently
           requires some prepayment of principal as a condition for
           approving a negotiated partial release of security.

      c.   When the mortgagor wants to sell its project, it must submit
           to HUD a formal Application for Transfer of Physical Assets
           (Form HUD 92266). Normally the mortgagee signs the
           Application. If
           the mortgagee refuses to execute the Application, it must
           write HUD and state the reason for refusing to sign the form.
           In two instances HUD will not accept a transfer application
           which has not been signed by the mortgagee:

           1.   Where the mortgage has not been finally endorsed for
                mortgage insurance, and

           2.   Where the proposal to transfer involves the creation of
                a lien against the property. In this second case
                mortgagees agree to waive certain rights, so lenders
                should use due diligence in examining such proposals.


                                Section 5.   Servicing HUD Requirements

2-18.In exchange for the benefits of HUD's mortgage insurance
protection,
     mortgagees agree to adhere to a number of requirements. First and
     foremost, mortgagees agree to become HUD-approved mortgagees. The
     procedures for becoming an approved mortgagee are contained in HUD
     Handbook 4060.1, Mortgagee Approval Handbook, and will not be
     restated here. It is sufficient to remind mortgagees that annual
     reporting to HUD is necessary as a condition for continuing
     approval.

2-19.Annual Physical Inspections.   HUD Regulations, at 24 CFR
207.260(a),    state:

      "Annual inspection of property by mortgagee. As long as the
      mortgage is insured by the Commissioner, the mortgagee shall
      ascertain the general physical condition of the mortgaged property
      in each calendar year commencing with the calendar year following
      completion of the project. The mortgagee shall furnish the
      Commissioner and the mortgagor with a copy of its inspection
      report, which shall contain the mortgagee's recommendations for
any
      necessary action." The inspection and reporting requirement is
      included in the Mortgagees Certificate signed by mortgagees. The
      inspection and reporting requirements were restated in Mortgagee
      Letter 88-22, issued July 11, 1988. Key points of this Mortgagee
      Letter are restated here. Where differences between the Mortgagee
      Letter and this handbook exist, this handbook prevails. There
      should be no misunderstanding of the importance HUD attaches to
      annual physical inspections by mortgagees.

2-20.Inspection Requirements. Lenders must inspect each property at
least
     once each year. The inspection must be of sufficiently high
     quality to permit an accurate evaluation of the condition of the
     property by the mortgagee and by HUD. Mortgagees must schedule
     inspections so that at least ten (10) months but no more than
     twelve (12) months lapse between their physical inspections of any
     particular project. Lenders should contact the local HUD Field
     Office when developing an inspection schedule. The Field Office
     can provide information about required repairs and its own on-site
     visits to projects. Lenders should ask the project's owner or
     management agent to be present during the inspection. Immediately
     before inspecting a project, the inspector should ask the Loan
     Management Branch staff of the HUD Field Office if there are any
     known and outstanding maintenance problems. HUD Field Offices may
     not impose more stringent inspection requirements upon mortgagees
     than the requirements established in this handbook or in HUD
     Handbook 4350.1.

      a.   Before inspecting a project the mortgagee should review its
           files:

           1.   Past inspections -- results and follow-up actions.

           2.   Property insurance loss drafts (inspection of repairs
                needed). NOTE: Mortgagees are not permitted to charge
                mortgagors for any inspections, including inspections
                made in connection with property insurance loss drafts.

           3.   Withdrawals from the Reserve Fund for Replacements or
the
                Residual Receipts accounts for repairs (inspection of
                repairs needed or made).

      b.   During the inspection the mortgagee's inspector should:

           1.   Walk through the project's grounds, common areas,
office,
                and maintenance work areas.

           2.   Determine if any maintenance or repairs required by the
                mortgagee or by HUD have been acceptably completed or
are
                underway and progressing on schedule.

           3.   Select at least two units at random from the list of
                 vacancies. If time and resources permit, select two
                 additional vacant units: One should be a unit that has
                 not been cleaned or repaired after move-out; another
                 should be a unit which is ready for occupancy.
                 Experience has shown that inspecting a unit that has
been
                 off-line for a longer period of time than one which was
                 recently vacated and not cleaned and repaired can reveal
                 more information about turnover and make-ready
procedures
                 than might otherwise be discovered.

            4.   Select several occupied units at random and inspect
those
                 units.

            5.   Ask the owner or management representative about causes
                 of maintenance problems,
                 maintenance procedures, and major repairs, both recently
                  completed and anticipated.

            6.   Assess the condition of the items listed in Part B of
Form HUD
                 9822, Physical Inspection Report.     The Form HUD 9822 can
be
                 obtained from local HUD Field Offices.

          7.     Summarize the observations and conclusions reached
during the
                 inspection for the owner or management representative at
the
                 end of the inspection.

            c.   Reporting Requirements.   The servicing mortgagee must
send the
                 HUD Field Office and the mortgagor a written report of
the
                 inspection within thirty (30) days following the
inspection.
                 If a managing agent is managing the project, the
mortgagee
                 also should send the agent a copy of the report.    The
report
                 must be prepared on Form HUD 9822 (OMB Approval No.
2502-0369)
                 or a Field Office approved computer facsimile of the
form.
                 The mortgagee is not required to complete the "cost
estimates"
                 portion of the form; it should write a narrative summary
                 describing the general condition of the property and if
                 possible provide pictures that typify the results of the
                 inspection. Although not specifically required by HUD,
                 servicing mortgagees should ask their holding mortgagees
if
                 they would like copies of the physical inspection
reports.
                When reasons exist for not meeting the 30-day deadline,
e.g.,
                when an inspection report is returned to a contractor
for
                corrections, mortgagees are encouraged to notify the HUD
Field
                Office of the reasons for the delay before expiration of
the
                deadline.

           1.   In the "Comments" Section (Part E) of the HUD 9822, the
                mortgagee should cross-reference particular line items
in
                Parts B, C, or D of the Report and discuss at least the
                following topics:

                (a)   Any maintenance needs noted in Part B of the
                      Report. If maintenance is urgently needed, the
                      mortgagee should suggest a target completion date.

                (b)   Any problems noted in Part C of the Report.

                (c)   The lender's opinion about reasons for any "Below
                      Average" or "Unsatisfactory" ratings given in Part
                      D of the Report.

           2.   The cover letter sending the report to the owner must
                require the owner to:

                (a)   Return to the mortgagee a written statement within
                      thirty (30) days about how and when the owner will
                      correct all deficiencies noted in the report.

                (b)   Send the HUD Field Office a copy of the owner's
                      response.

      d.   Follow-up Action. If the mortgagor has not responded within
           thirty days or if the response is not satisfactory, it may be
           necessary for the mortgagee to call the mortgagor. The
           mortgagee should confirm the results of conversations in
           writing, with a copy to the HUD Field Office. If the
           mortgagor remains uncooperative, the mortgagee should call
the
           Asset Management Branch Chief of the HUD Field Office and ask
           for any assistance HUD can give.

2-21.HUD's requirements regarding holding and investing monies in the
Reserve
     Funds for Replacements and Residual Receipts are described below:

      a.   The revised Section 8 regulations require owners of projects
           subject to those regulations to invest monies held in the
           Reserve Fund for Replacements and in the Residual Receipts
           Account.

      b.   The Residual Receipts of all projects with HUD-insured
           mortgages must be invested with interest accruing from the
            investments credited to the Residual Receipts Account.

       c.   Consistent with program regulations and the Regulatory
            Agreement, the Reserve Fund for Replacements must be
            maintained by the mortgagee. Investment options for the
            Reserve Fund for Replacement should be determined jointly by
            the mortgagor and mortgagee. The Regulatory Agreement
            requires, "such fund, whether in the form of a cash deposit,
            or invested in obligations of, or fully guaranteed by the
            United States of America, shall at all times be under the
            control of the mortgagee." This paragraph suspends this
            provision by authorizing the mortgagee to invest funds in
            excess of $100,000
            in U. S. government-backed securities and to hold funds in
            excess of $100,000 in institutions under the control of, and
            whose deposits are insured by, the Federal Deposit Insurance
            Corporation, National Credit Union Association, or other U.
S.
            government insurance corporations under the following
            conditions:

            1.   Mortgagees must determine that the institution has a
                 rating consistent at all times with current minimally
                 acceptable ratings as established and published by
                 Government National Mortgage Association (GNMA).

            2.   Mortgagees must monitor the institution's ratings no
less
                 than on a quarterly basis, and change institutions when
                 necessary. The mortgagee must document the ratings of
                 the institutions where the funds are deposited and
                 maintained the documentation in the administrative
record
                 for three years, including the current year.

            3.   If the mortgagee does not perform the required quarterly
                 review of the institutions where there are deposits in
                 excess of $100,000 and does not maintain the funds in an
                 institution with a rating consistent with current
                 minimally acceptable ratings as established and
published
                 by GNMA, and the institution fails, the mortgagee is
held
                 responsible for replacing any lost funds. In addition,
                 the mortgagee shall be subject to sanctions. In the
                 event the mortgagee fails to replace the lost funds, HUD
                 will seek all available remedies to recover whatever
                 funds are lost as a result of the failed institution.

       d.   The above language is not deemed a modification of the
            Regulatory Agreement. Therefore, HUD reserves the right to
            invoke this Regulatory Agreement provision and make it
            operational in the future through notice or handbook change,
            if it is determined that such a policy is necessary or
            desirable.

2-22.Investing Money in Residual Receipts Funds for Certain Section 8
      Projects. Investment of Residual Receipts is required for certain
      projects receiving Section 8 assistance.

     a.   The revised Section 8 regulations apply to all owners of
older
          Section 8 projects where the owners voluntarily opted to be
          bound by those regulations.

     b.   The revised Section 8 regulations also apply to projects for
which:

          1.   Agreements to Enter Into Housing Assistance Payments
               Contracts (AHAPs) were executed on or after November 5,
               1979 for New Construction projects. 24 CFR subpart
               880.601(e) provides, "Use of project funds. (1) Project
               funds must be used for the benefit of the project, to
               make required deposits to the replacement reserve in
               accordance with ' 880.602 and to provide distributions
to
               the owner as provided in '880.205.   Any remaining
project
               funds must be deposited with the mortgagee or other HUD-
               approved depository in an interest-bearing residual
               receipts account. Withdrawals from this account will be
               made only for project purposes and with the approval of
               HUD. (2) Partially-assisted projects are exempt from
the
               provisions of this section. (3) In the case of HUD-
               insured projects, the provisions of this paragraph will
               apply instead of the otherwise applicable mortgage
               insurance provisions."

          2.   Agreements to Enter Into Housing Assistance Payments
               Contracts (AHAPs) were executed on or after February 20,
               1980, for Substantial Rehabilitation projects. 24 CFR
               subpart 881.601(e) provides, "Use of project funds. (1)
               Project funds must be used for the benefit of the
               project, to make required deposits to the replacement
               reserve in accordance with ' 881.602 and to provide
               distributions to the owner as provided in '881.205. Any
               remaining project funds must be deposited with the
               mortgagee or other HUD-approved depository in an
               interest-bearing residual receipts account. Withdrawals
               from this account will be made only for project purposes
               and with the approval of HUD. (2) Partially-assisted
               projects are exempt from the provisions of this section.
               (3) In the case of HUD-insured projects, the provisions
               of this paragraph will
               apply instead of the otherwise applicable mortgage
               insurance provisions."

2-23.Investing Residual Receipts of All Other Projects. The Residual
     Receipts of all other projects should be invested, with interest
     accruing from the investments credited to the Residual Receipts
     account. Interest may be transferred from the Residual Receipts
     accounts of these projects to the operating funds of these
projects
      without HUD's written instructions.

2-24.Investing Money in the Reserve Fund for Replacements for Certain
Section
          8 Projects. Investment of the Replacement Reserve funds is
          required for certain projects receiving Section 8 assistance.

     a.   The revised Section 8 regulations apply to all owners of
older
          Section 8 projects where the owners voluntarily opted to be
          bound by those regulations.

     b.   The revised Section 8 regulations apply to projects for
which:

          1.   Agreements to Enter Into Housing Assistance Payments
               Contracts (AHAPs) were executed on or after November 5,
               1979, for New Construction projects. 24 CFR subpart
               880.602 (a) provides, "A replacement reserve must be
               established and maintained in an interest-bearing
account
               to aid in funding extraordinary maintenance and repair
               and replacement items." Subpart 880.602(a) (3) provides,
               "All earnings including interest on the reserve must be
               added to the reserve." Subpart 880.602(b) provides,
               "Partially-assisted projects are exempt from the
               provisions of this section."

          2.   Agreements to enter Into Housing Assistance Payments
               Contracts (AHAPs) were executed on or after February 20,
               1980, for Substantial Rehabilitation projects. 24 CFR
               subpart 881.602(a) provides, "A replacement reserve must
               be established and maintained in an interest-bearing
               account to aid in funding extraordinary maintenance and
               repair and replacement of capital items." Subpart
881.602
               (a) (3) provides, "All earnings including interest on
the
               reserve must be added to the reserve." Subpart
881.602(b)
               provides, "Partially-assisted projects are exempt from
               the provisions of this section."

2-25.Investing Reserve Funds for Replacements of All Other Projects.
The
     Reserve Fund for Replacements of all other projects should be
     invested, with interest accruing from the investments initially
     credited to the Reserve Fund account. Interest may be transferred
     from the Reserve Fund accounts of these projects to the operating
     accounts of these projects periodically at the mortgagor's request
     and without specific written instructions from HUD.

2-26.Servicing mortgagees need to remember their fiduciary
responsibilities
     to mortgagors when establishing a fee structure for investing
     Residual Receipts and Replacement Reserve funds. They should
     recover only their actual administrative costs, which should never
      exceed 25 per cent of the interest earned from the investment. If
      these costs are excessive a mortgagee should make every effort to
      control or reduce its costs. Mortgagees are to collect their
      investment charges, if any are made, separately and apart from
      other collections from the mortgagor. These charges may be
      collected by a separate billing to the mortgagor or by a separate
      Letter Agreement with the mortgagor. Only for those Section 8
      projects required by HUD's regulations to have the reserve funds
      invested may agreed upon charges be collected from interest earned
      by the investments.

      NOTE: All monthly payments are due on the first of the month. If
      the monthly payment is received more than 15 days after the due
      date, more than once during a calendar year, the mortgagee may
      deduct Late Charges from the interest accruing to either the
      Reserve for Replacement Fund or Residual Receipts Account without
      the express written consent of HUD or the mortgagor for any
      subsequent late monthly payments during the calendar year.

2-27.Liquidity. The mortgagor, not the mortgagee, is responsible for
     deciding the liquidity requirements of funds held in the Reserve
     Fund for Replacements and the Residual Receipts Account. However,
     the mortgagor should maintain some portion of its reserves in the
     form of very liquid assets. As a guideline and depending upon the
     specific project, $50/unit, or three or four months' required
     deposits to the Reserve Fund may be enough to meet minimum
     liquidity requirements. For those projects that maintain both a
     Reserve Fund for Replacements
     account and a Residual Receipts account, the money held in these
     two accounts may be combined jointly to purchase a single
     investment if and only if all three of the following conditions
are
     met:

      a.   The mortgagor requests that action in writing.

      b.   Separate bookkeeping entries are established in the books of
           the mortgagor and the books of the mortgagee to reflect the
           correct pro-rata accruals of interest to the respective
           accounts.

      c.   The mortgagor agrees in writing to reimburse both accounts
for
           the loss of any principal amount which may be suffered by
           premature liquidation of the investment. This reimbursement
           may be effected by deducting from the amount to be released
to
           the mortgagor an amount sufficient to make up the loss.

2-28.Timeliness. Mortgagees should make investments in a timely
manner.
     Normally this should be within five to ten business days after
     receipt of the mortgagor's request unless extenuating
circumstances
     exist. The mortgagee is to credit the mortgagor's account with
     interest as it is earned in accordance with Generally Accepted
     Accounting Principles. HUD strongly encourages, and in some cases
       requires, that interest earned from the investment of reserve
       accounts be kept in those accounts. However, except for certain
       projects assisted under Section 8 (where interest must remain in
       the Reserve Account), interest may be returned to the mortgagor's
       operating account if the project is in an acceptable physical
       condition. disbursements of interest to the operating account of
       the project should be made at least semi-annually unless the
       mortgagor requests less frequent payments.

2-29.Minimum amounts of investments depend on the type of investment
selected
     by the mortgagor. For example, if some funds are held in a
     passbook savings account, a reasonable minimum would be the amount
     remitted each month for deposit into the Reserve Fund. Good
     business judgment should prevail if minimum investment amounts are
     set by a mortgagee.

2-30.Reporting to HUD, General, HUD Handbook 4060.1, Mortgagee Approval
     Handbook, describes in detail various reports which different
     categories of mortgagees must make. These requirements are not
     restated in this Chapter 2, but mortgagees are reminded of the
     existence of these requirements.

2-31.Mortgagees must keep HUD informed of certain changes that may
occur
over      the life of the mortgage. They also provide other
information
          upon specific requests. Mortgagees normally become aware of
          three events before HUD does and they must inform HUD when
          these happen. These three events are: 1) change in
          mortgagee(s); 2) termination of mortgage insurance; and, 3)
          change in loan status. Although these reporting requirements
          and their instructions are generally known, they are restated
          here for convenient reference. Samples of forms that are
used
          are in the Appendix.

       a.   Mortgage Record Change, Form HUD-92080. Mortgagees should use
            this form for insured loans only, not for commitment
            assignments. Detailed instructions for submission of this
form
            are contained in HUD Handbook 4110.2, The Mortgagee's Guide
            Home Mortgage Fiscal Instructions. Whenever there is a
change
            of servicer or a sale of a HUD-insured mortgage, HUD should
be
            advised within fifteen calendar days of the action in order
to
            amend its records so that future premium notices and
            correspondence can be directed properly. The mailing address
            is on the form. HUD would consider it a courtesy if a copy
of
            this form is sent to the HUD Field Office which has
            jurisdiction over the project; this would help maintain good
            communications between HUD and the mortgagees involved. In
            the alternative, a telephone call to the Loan Management
            Branch of the Field Office would have the same effect as
            mailing the courtesy copy to the Field Office.

            1.   Sale of Mortgage. It is the Seller's responsibility to
                 submit this form (HUD 92080). Boxes 1, 2, 3, and 5
                 through 14 must be completed by the Seller. Box 15
                 should be signed by an authorized official of the
                 purchasing mortgagee. Signatures in Boxes 14 and 15 are
                 official notice to HUD that the insured loan has been
                 sold in accordance with HUD regulations.

            2.   Change of Servicer. Boxes 1, 2, 3, 5, 7, 8, 10, 12, and
                 15 must be completed.

            3.   Changes of addresses of the holding or the servicing
                 mortgagee. Although use of this form is not
specifically
                 mandated for reporting address changes, mortgagees would
                 probably find that using this form to report these
                 changes is the most convenient means to notify HUD of
                 address changes. If address changes are not reported
                 quickly, mortgagees run the risk of, for instance,
having
                 billings for Mortgage Insurance Premiums sent to a
former
                 address; the delays which might then result could cause
                 surcharges to the mortgagee which would otherwise be
                 unnecessary.

       b.   Request for Termination of Multifamily Mortgage Insurance
Form
            HUD-9807. This form is executed by the servicing and
            investing mortgagees when a mortgage is to be prepaid in
full;
            the mortgagor as well must execute it when voluntary
            termination of mortgage insurance is being requested.
            Mortgages insured under certain Sections of the Act may not
be
            prepaid in full, nor may their mortgage insurance be
            terminated, without HUD's written approval. The Form HUD-
9807
            (Appendix 3) itself should be reviewed for exact instructions
            and restrictions, but these Sections are shown below for
            convenient reference:

       Act Section        Special Conditions Requiring Approval

       207/223(f)         All projects with commitments to insure issued
                          after 10/8/80, unless five years have elapsed
                          since endorsement (or 20 years in the case of
                          mortgages purchased by GNMA under section 305
                          of the National Housing Act)

       221(d)(3)MR        Almost all projects, except certain projects
                          which are owned by limited dividend owners and
                          do not receive project-based Section 8 or Rent
                          Supplement assistance (Consult OGC's
                          Multifamily Mortgage Division for further
                         guidance.)*

      221(d)(5)          All [often called "221(d)(3) BMIR"]


     Act Section         Special Conditions Requiring Approval
     231                 All Non-Profit Projects
     232                 All Non-Profit Projects
     236                 All
     Title XI            All
*Note: To reduce the possibility of mortgages being prepaid without
HUD's consent where such consent may be required, Form HUD-9807
requires
a written request for HUD approval for certain categories of projects
where the necessity for such approval requires OGC's determination.

     c.   Multifamily Default Status Report, Form HUD-92426.
Mortgagees
          use this form to report any one of five changes in the status
          of the loan. These are: 1) initial default; 2) update on
          default status; 3) reinstatement; 4) election to assign or
          acquire; and 5) withdrawal of prior election. More
          instructions for using this form are contained in Section 6
of
          this Chapter 2.


                                  Section 6.   Servicing Delinquent
Accounts

2-32.General. No one will argue with the statement, "The best way to
     service a delinquent loan is to keep it current." For instance,
     revenue and expense statements of the mortgagor, either monthly or
     yearly, are important. Mortgagees should always review these
     carefully and compare them with previous statements. Future
     delinquencies may be foreseen and perhaps prevented by analysis of
     these statements. If the mortgagor is uncooperative in providing
     these statements, the mortgagee should contact the Loan Management
     Branch of the HUD Field Office for assistance.

      a.   If some item is out of line, the mortgagee should question
the
           item; it should get an explanation that makes sense.
           Neglecting or "milking" a project usually shows up first on
an
           operating statement.

      b.  Some operating statements, when compared to previous ones,
          show a downward trend in gross income. This trend is counter
          to general, long-term economic trends, it usually indicates
          something is wrong, and it should be checked out. Sometimes
          the amounts spent for repairs and replacements or for other
          necessary items show a decrease. Sometimes occupancy levels
          show a decrease, or accounts receivable and bad debt write-
          offs show an increase. Has there been a change in
management?
      c.   The project and its income are the investing mortgagee's (and
           HUD's) security. Where indicated, the mortgagee should
           arrange for a meeting with the project's owner and perhaps
           with its managing agent; it should discuss the problems with
           the staff of the Loan Management Branch of the local HUD
Field
           Office. They will be grateful for the opportunity to help
           servicing mortgagees prevent delinquent accounts.

      d.   The servicing mortgagee and HUD can and often do "team up"
and
           act in concert to impress upon recalcitrant mortgagors the
           importance of the mortgage obligations.

2-33.Many loans become delinquent and then go into default after a long
     history of slow payments. Sometimes servicing mortgagees simply
     allow a slow paying mortgagor to continue with slow payments,
     adopting the
     undesirable attitude of, "Slow pay is better than no pay."
     Sometimes a new servicing mortgagee acquires servicing
     responsibility for a loan which has had a long history of poor
     payments. Occasionally a loan that has had an excellent payment
     history suddenly becomes delinquent and then goes into default.
     Whatever may be the case, the servicing mortgagee's responsibility
     and immediate task is to restore the loan to a routine servicing
     status as quickly as possible.

2-34.Delinquent accounts cost more to service because they are more
staff-
          intensive (requiring more time to arrange and have meetings,
          visit the project, write letters, make telephone calls,
etc.),
          and because they deprive the mortgagee of float. Both the
          revenue and the expenses of the servicing mortgagee are
          adversely affected by delinquent loans.

2-35. The mortgagee needs to determine the causes of delinquency or
default
       There are many conditions that, either singly or in
       combination, may cause delinquencies and defaults. The
       mortgagee should ask the mortgagor promptly to remedy the
       conditions under its immediate control. Some of these
       causes are:

      a.   Inexperienced, ineffective, or absentee ownership or
           management where the project is owner-managed and where the
           owner lacks the expertise or interest necessary to operate
the
           project as it should be operated.

      b.   Project abandoned or bankruptcy petition filed.

      c.   Improper financial operations, such as payments to owners,
           loans to owners or other projects, or excessive costs,
           particularly where identity-of-interest vendors are involved.

      d.   Deliberate disregard for mortgage obligations, uncooperative
            mortgagor, or uninterested ownership. This is one of the
            common reasons for chronic delinquency and some mortgagors
            intentionally take advantage of the "grace period" to use the
            float for their own benefit.

       e.   Mortgagor has limited financial resources. There may not be
            sufficient working capital to make the mortgage payment that
            is due on the first of the month until the rents due on the
            first of the same month are collected,
            deposited, and rent checks have cleared. Or the owner may be
            unwilling or unable to advance cash to the project for its
            continued operations. This is another major cause of chronic
            delinquencies.

       f.   Mismanagement or ineffective management.

       g.   Expenses (operating, taxes, insurance) have increased while
            rents have not. Break-even or negative cash flow.

       h.   Misjudgment of or change in rental market. Project lacks the
            unit mix (size and type of units) to compete; generally soft
            rental market because of, say, home buying or the new
            construction of other rental properties; rental rates too
high
            even where supported by essential operating expenses.

       i.   Functional obsolescence. Project is not competitive with
            other rental communities in the market because of lack of
            facilities and amenities.

       j.   Generally depressed economy.

2-36.The servicing mortgagee acts promptly to learn the reasons for the
     delinquency or the default. Few chronic delinquencies and fewer
     defaults will cure themselves. Prompt and accurate identification
     of the causes of a problem loan or an impending default is
     imperative if the mortgagee is going to help the mortgagor. For
     clues to the reasons for the problem, the mortgagee should review
     the mortgagor's financial statements before calling the mortgagor.
     For example, if these statements show adequate income and working
     capital, the problem might be a recalcitrant owner or managing
     agent. on the other hand, decreasing occupancy levels might point
     towards economic, marketing, or design problems. Discussions with
     the owner and the agent will be more productive if the lender
first
     reviews the financial statements.

2-37.Mortgagees notify HUD of the delinquency or the default. HUD
issued
     Mortgagee Letter 83-1 on January 12, 1983, and asked mortgagees to
     volunteer to alert HUD about mortgage payments that were not
     received by the fifteenth of the month. HUD and lenders have
     common financial interests in projects with insured loans. HUD
and
     lenders can be very effective when working as a team to help
     mortgagors develop
     solutions to problems of delinquencies and defaults. Mortgagees
       must inform HUD about a default that continues for thirty (30)
days
       by completing Form HUD 92426, "Multifamily Default Status Report,"
       within
*      thirty (30) days thereafter even if the default is cured before
the
       date by which HUD must be notified. When a default that continued
       for thirty days is cured before the deadline for notifying HUD of
       the default, the mortgagee must provide HUD with both a Notice of
       Default and a Notice of Reinstatement using Form HUD 92426.
       Failure to do so could jeopardize a subsequent mortgage insurance
       claim. Table 2 below provides default * dates and deadlines
       associated with default events. However, notwithstanding this
       maximum 30-day timeframe, HUD would deeply appreciate being
       informed of a default as soon as possible (at least within ten
       days) after it occurs. The Form HUD 92426 is used to report
       defaults, reinstatements, and elections to assign a mortgage or
       acquire title to a property.

                   Table 2.       Default Dates and Related Deadlines

Unpaid    Must Be      Mortgagee   Notify HUD            Make Election
Instlmnt. Be           Eligible for     by              to Assign
Due       Paid         Insurance        H.O.b.          Mortgage
on                     On

Jan 1      Jan    31   Feb    1           Mar     2     Mar    17
Feb 1      Mar     3   Mar    4           Apr     2     Apr    17
Mar 1      Mar    31   Apr    1           Apr    30     May    15
Apr 1      May     1   May    2           May    31     June   15
May 1      May    31   June   1           June   30     July   15
June1      July    1   July   2           July   31     Aug    15
July1      July   31   Aug    1           Aug    30     Sept   14
Aug 1      Aug    31   Sept   1           Sept   30     Oct    15
Sept1      Oct    1    Oct    2           Oct    31     Nov    15
Oct 1      Oct    31   Nov    1           Nov    30     Dec    15
Nov 1      Dec    1    Dec    2           Dec    31     Jan    15
Dec 1      Dec    31   Jan    1           Jan    30     Feb    14

1.        These dates assume 28 days in February; adjust for leap years.
2.        For deadlines falling on Sat., Sun., or federal holiday, use
next
          business day.

2-38.The investor also should be notified promptly if a serious problem
         becomes apparent. The need to notify the investor depends on
the
         requirements of the investor and on such factors as the amount
of
         the loan in relation to the security.

2-39.Occasional delinquencies are common, but delinquencies can be
tolerated
         only under genuine distress conditions. Highly personalized
         attention is needed on a loan which is in arrears for as long
as
         five to seven days. Lenders need to find out the reasons for
           delinquencies as part of a strategy for preventive servicing.
By
           paying close attention to occasional delinquencies, lenders
can
           help establish closer communications among the members of the
           housing team and prevent future defaults. Late charges
normally
           are not very effective in enforcing collections; if late
charges
           are assessed they help the mortgagee recover the increased
costs
         associated with servicing delinquent accounts. If late
charges are
         assessed they generally must be collected from the mortgagor
         separately, i.e. , late charges may not be deducted from
regular
         mortgage payments, escrows, other impound accounts, Reserve
Funds
         for Replacements, or Residual Receipts accounts. However, if
the
         regularly scheduled monthly payment is received more than
fifteen
         days after the due date more than once during a calendar year,
the
         mortgagee may deduct Late Charges from the interest accruing
to
         either the Reserve Fund for Replacements or the Residual
Receipts
         account without the express written consent of HUD or the
mortgagor
         for the second and subsequent late monthly payments during the
         calendar year.

2-40.    Chronic delinquencies. If servicing mortgagees reduce the
number of
         chronically delinquent loans they will make more money.
Solutions
         depend on the causes of the delinquencies. Lenders have tools
         available to use when curing these kinds of problems.

         a.     For instance, if the mortgagor is deliberately
withholding
                mortgage payments the lender could remind the mortgagor
that
                the lender has the power to grant or to deny certain
                concessions. These include direct refunding of excess
sums
                held in impound accounts, consent to partial releases of
                security, and consent to transfers of physical assets.
Other
                concessions include consent to Mortgage Modification
                Agreements or Provisional Workout Arrangements.


           b.   Lenders also could remind mortgagors who are chronically
                delinquent that the loan could "accidentally" slip into
                default, thereby jeopardizing the mortgagor's continued
                ownership of the project.   Lenders could inform
chronically
                delinquent mortgagors that immediate foreclosure would be
                recommended to HUD if assignment of the mortgage should
become
                necessary.

         c.   If lenders routinely discuss problems of chronic
delinquencies
              with the Loan Management Branch staff of local HUD Field
              Offices serious problems could often be averted.

2-41.Occasional defaults occur. A default constitutes a much more
serious
         breach of the mortgage than does a delinquency. Lenders must
take
         immediate action in the event of a default besides merely
reporting
         it to HUD. Defaults jeopardize the continued ownership of the
         project by the mortgagor, and lenders should remind mortgagors
of
         this fact. Lenders should have already been in touch with
         mortgagors during the period of delinquency before the default
         stage is reached. A default should not be a surprise; lenders
can
         anticipate it.

         a.     At the occurrence of the initial default event, a
servicing
                mortgagee should be able to estimate the likelihood of
                reinstatement. It should have learned the reasons for
the
                default.   It should have worked with the mortgagor to
develop
                plans to cure the delinquency. These plans should be the
                basis for a plan to reinstate the loan. The mortgagee
should
                have discussed the problems and possible solutions with
the
                HUD Field Office. An action plan for reinstatement or
                assignment of the mortgage should be in place.

           b.   The servicing mortgagee also should inform the holding
                mortgagee of the issues as the servicer develops a plan
for
                actions to be taken.   The investing mortgagee has the
ultimate
                responsibility and authority for the decision to assign
the
                mortgage to HUD.

           c.   The servicing mortgagee is reminded to notify HUD of the
                default as described in Paragraph 2-33 of this handbook,
using
                Form HUD 92426.
         d.     The election decision must be made by the investing
mortgagee
                within seventy five (75) days from the date of default
unless
                the mortgagee requests an extension of this deadline.
This
                decision should be a fully informed decision in which the
                servicing mortgagee and HUD have discussed the issues and
the
                likelihood of reinstatement with the investor.

          e.    Requests for extensions of the deadline for electing to
assign
                a mortgage or to acquire and tender title to a project
must be
                in writing. These requests are sent to the local HUD
Office by
                the servicing mortgagee.

                1.   The extension request should set forth the
justification
                     for the requested extension.

                2.   Extensions will be deemed justified if there is
                     satisfactory protection of income and if there is a
                     prospect for reinstating the mortgage.

                3.   In most cases of the initial default, an extension
should
                     be requested to afford the mortgagee and HUD
additional
                     time to: (a) Investigate the default further; (b)
                     Negotiate with the mortgagor; (c) Allow the
mortgagor
                     enough time to cure the default under a
reinstatement
                     plan approved by the mortgagee and by HUD.

          f.    If the mortgagee fails to elect to assign the mortgage or
                obtain an extension from HUD within the prescribed time
limits
                it will be faced with the choice of either accepting a
                curtailment of interest on the claim because of the late
                election or basing its claim on a subsequent default
(thus
                delaying the default date for purposes of calculating the
                claim).

2-42.Reinstatement. There are a number of tools which may be available
to
         cure a default when the causes of the default have been
determined.
         The mortgagee, the mortgagor, and HUD need to explore these
         solutions together. The Loan Management Branch Chief of the
local
         HUD Field Office needs to be involved in discussions involving
the
           development of a reinstatement plan. After the mortgagee, the
           mortgagor, and HUD have agreed to a reinstatement plan, the
           mortgagee and the mortgagor need to agree to this plan in
writing.
           Many of these remedies can be used in combination with one
another.
           Nearly all require the fullest
           cooperation of the three team members.   Some solutions require
more
           time to develop and use than others.   Reinstatement proposals
could
           include several of the following actions:

           a.   Infusion of additional cash by the mortgagor as either an
                equity contribution or in the form of an unsecured loan.

           b.   Releases from the Reserve Fund for Replacements or from
the
                Residual Receipts Account.

           c.   Suspending deposits to the Reserve Fund for Replacements.

           d.   Requests for deferment of payments to principal.

           e.   Adjustments to rental rates, upward or downward.

           f.   Tax abatement.

           g.   A change in management or in ownership.

           h.   An Operating Loss Loan.

           i.   A Supplemental Loan for Capital Improvements.

           j.   Additional project-based subsidy in the form of Section 8
                assistance.

           k.   Flexible Subsidy Assistance for certain projects.

           l.   Special Forbearance Relief and Special Insurance Benefits
for
                projects insured under Sections 220, 221 and 236.

           m.   Partial payments of claim for rental or cooperative
housing
                projects that are or potentially could serve as low- and
                moderate-income housing resources.

           n.   Bond refunding for bond-financed projects.

2-43.Chronic defaults constitute a very dangerous threat to the housing
team.    The mortgagor stands to lose the project. The servicing
         mortgagee may expect to lose future servicing revenue. The
         investing mortgagee usually risks losing some of its
         investment. HUD's insurance funds are
         subject to a loss. The costs of servicing chronically
defaulted
          loans are much greater for the servicer and HUD.

          a.   Servicers should try to have a meeting with chronically
               defaulting mortgagors. This meeting should be usually
held in
               the mortgagee's office. The mortgagee should explore
               thoroughly the problems leading to a continuing default.
The
               servicing mortgagee needs to decide whether to recommend
to
               continue holding the mortgage in default or to assign the
               mortgage to HUD. The servicer makes this recommendation
to
               the investor.

          b.   If a mortgagee decides to work with a mortgagor, it must
               request from HUD any necessary extensions of the
assignment
               election deadline. Although there is no maximum number of
               extensions that HUD may approve, extensions shall be
limited
               to the period necessary to accomplish the intended
objectives.
               The Housing Management Division Director of the local HUD
               office is authorized to extend, in 30-day increments, the
               regulatory period within which the holding mortgagee must
               elect to acquire and tender title to the property or to
assign
               a mortgage.

         c.   The Housing Management Division Director also is
authorized to
              grant a one-time, six month extension of the regulatory
period
              if the extension is to cover negotiation of a
reinstatement
              plan; the mortgagee or HUD can make a reinstatement plan
              subject to cancellation upon failure of the mortgagor to
              perform.

2-44.If development of a workable reinstatement plan does not appear
possible      or practical and if it does not appear likely to the
investing
              mortgagee that the loan will ultimately regain a current
              status, the holding mortgagee may choose to exercise its
              option to assign the mortgage or acquire and convey title
to
              the property.

          a.   Under the contract of mortgage insurance, the mortgagee
may
               elect to:

               1.   Assign the mortgage to HUD, in which event the claim
                    generally will be reduced by one percent (1%) of the
                    unpaid principal balance; or
                2.     Acquire and convey title to the property, in which
event
                       settlement of the claim will include the unpaid
principal
                       balance as of the date of default.

           b.   HUD may ask the mortgagee to assign the mortgage to HUD
in
                lieu of foreclosing on the property, in which case all or
part
                of the one percent deduction is waived.

         c.     Unless the HUD Field Office approves an extension of
time, the
                mortgagee must make its election within seventy five (75)
days
                after the date of default.   The mortgagee should use Form
HUD
                92426, Multifamily Default Status Report, but an
"election
                letter" is acceptable.

*          d.   The date of default is the due date of the first unpaid
                payment when payments are applied in the order in which
they
                come due.   For example, if an owner did not make the
payment
                due June 1 by July 1, the mortgage is in default as of
June 1.
                If the payment is not made on or before July 1, the
                mortgagee's entitlement to receive insurance benefits
vests on
                July 2 (the day following the expiration date of the 30-
day
                grace period which begins after the payment due date).
If the
                owner did not make the June 1 and July 1 payments but did
make
                one monthly payment on August 15, the mortgagee could
apply
                the payment received on August 15 to the June 1 payment
if the
                mortgagee had not made its election to assign the
mortgage to
                HUD.

                1.     In the preceding example, if the mortgagee applied
the
                       funds received on August 15 to the payment due June
1,
                       July 1 would be the new default date for purposes of
                       calculating insurance benefits. In this case the
                       mortgagee must comply with all procedural and filing
                       deadlines that apply to the new default date. In
this
                       example, the mortgagee must submit a notice of
default
                     using Form HUD-92426 no later than August 30
regarding
                     the delinquent July 1 payment and must make the
                     assignment election by September 14 unless an
extension
                     of this latter deadline is requested from and
granted by
                     HUD.

                2.   The Department encourages mortgagees to choose the
option
                     to allow a mortgagor to make up a payment that is
past
                     due in order to allow time to work with the
mortgagor.
                     However, mortgagees are advised to require either
                     certified funds or a wire transfer of funds to guard
                     against applying a check drawn on insufficient funds
to
                     cure a default of sixty or more days duration to
guard
                     against not meeting the 75-day deadline for the
                     assignment election.

                3.   Using this same example, if the mortgagee applied a
check
                     received on August 15 to the payment due June 1 and
if
                     the check were not honored, the mortgagee would
still be
                     responsible for making its assignment decision and
                     election by AugUst 15 unless it received HUD's
written
                     extension of the deadline for making the election.
                     Failure to make the assignment election by its
deadline
                     will impair mortgage insurance benefits.

         e.     For fully insured mortgages Form HUD-92426 must be
submitted
                monthly until the mortgage has been reinstated or until
an
                insurance claim has been filed.

           f.   Mortgagees should refer to the instructions on the Form
HUD-
                92426 for additional information about filing
requirements.
                Mortgagees should make certain that all dates and dollar
                amounts are correctly entered.

           g.   If the mortgagor cures the default prior to completion of
                foreclosure proceedings, mortgage insurance shall
continue as
                if a default had not occurred provided the mortgagee
gives
                written notice of reinstatement to HUD.
                                Section 7.     Claims

     2-45.     Mortgagees notify HUD of Election and Withdrawal
decisions by
               sending an original and one copy of Form HUD-92426,
Multifamily
               Default Status Report (or an "election letter"), to HUD
               Headquarters, Office of Multifamily Housing Management.
               HUD will provide specific instructions for completing the
               claims process. These instructions may vary from time to
               time or the instructions may vary for mortgages insured
               under different Sections of the Act. By way of general
               information, a Fiscal Data Package for a fully insured
               mortgage will need to be prepared by the assigning
               mortgagee and submitted to HUD. This package of forms is
               in Appendix 5 as a "Sample" only; it includes the
               following:

        a.     "Instructions for Applications for Insurance Benefits,"
HUD-
               2741

        b.     "Mortgagee's Application for Insurance Benefits," HUD-
2747

        c.     "Mortgagee's Application for Partial Settlement," HUD-
2537

        d.     "Statement of Taxes," HUD-434

        e.     "Fiscal Data In Support of Claim for Insurance Benefits,"
HUD-
               2742

        f.     "Allocation of Mortgage Receipts and Disbursements," HUD-
2744A

        g.     "Mortgagee's Report of Project Collections," HUD-2744B

        h.     "Mortgagee's Report of Project Disbursements," HUD-2744C

        i.     "Other Disbursements by Mortgagee," HUD-2744D

        j.     "Mortgagee's Report of Special Escrow," HUD-2744E

        k.     Payment Information Form (see Appendix 7, pages 25 & 26)

        Note:   Forms HUD-9250 for the three calendar years prior to
the
         assignment plus those approved in the calendar year of
assignment
         are to be submitted to HUD when mortgages are assigned to HUD
as
         part of a Default Election. Mortgagees also must be careful
to keep on file
         and be prepared to submit records evidencing all of HUD's
approvals
         of all releases from the Residual Receipts Account. Failure
to
         evidence releases as stated may result in a reduction of
insurance
         benefits.

2-46.   Claims for Coinsured Mortgages (Reserved).
Directive Number: [Prev Hit][Next Hit]4350.4


4350.4

_______________________________________________________________________
____

       CHAPTER 3.    MORTGAGEE RESPONSIBILITIES, CO-INSURED MORTGAGES
                                   (RESERVED)
_______________________________________________________________________
____

                CHAPTER 4.   HUD RESPONSIBILITIES

                      Section 1.   Fiduciary

4-1.      Through the Office of Multifamily Housing Management,
          the Department of Housing and Urban Development
          exercises fiduciary responsibility toward the
          taxpayer. It does this by minimizing losses in the
          multifamily insured loan and property disposition
          programs, by maximizing collections, by enforcing
          statutes and regulations, and by allocating,
          administering and monitoring subsidy-based programs
          in a cost-effective manner. HUD is charged with the
          responsibility to help provide and preserve an
          adequate supply of affordable housing. In carrying
          out this mission, HUD monitors the activities of
          mortgagors, managing agents, mortgagees, contract
          administrators, and other clients to assure
          compliance with the requirements of HUD's programs.

4-2.      The relationship between HUD and the mortgagee is
          based on obligations in which each party has specific
          rights and responsibilities. The operating
          requirements and administrative practices of
          individual mortgagees differ widely. In many
          instances a mortgagee may not require or desire that
          it be kept advised of all actions between HUD and the
          mortgagor; the opposite may be true on the part of
          another mortgagee. Mutual cooperation and assistance
          between the mortgagee and HUD is of great value.
          Through their direct contact with individual
          mortgagees, HUD Field Offices learn the extent to
          which a mortgagee desires to be advised of
          HUD-mortgagor actions.

4-3.      While the mortgagee has specific rights under each of
          the Sections and Titles of the National Housing Act
          which HUD must safeguard, the mortgagee also has
          definite responsibilities it must exercise. HUD is
          responsible for review of the conduct of mortgagee-HUD
          responsibilities and for insistence that those
          responsibilities be discharged adequately. HUD will
           not intervene in mortgagee-mortgagor relationships
           under the terms and conditions of the mortgage unless
           the parties' inability or unwillingness to reach an
           understanding appears likely to jeopardize the
           Secretary's interests. This does not preclude
           assistance to the mortgagor or the mortgagee when
           either party specifically requests such assistance
           and when it appears that HUD's participation on such
           requests will produce positive, constructive results.

 4-4.      The Mortgagee's Certificate is executed and submitted
 to HUD at the time of initial closing in the case of
 insurance of advances or at the time of final closing
 in the case of insurance upon completion. In
 addition to provisions with respect to the insurance
 of the mortgage, the Certificate contains agreements
 and certifications by the mortgagee concerning
 certain HUD requirements after insurance:

 a.    "Beginning with the date on which the first
       payment toward amortization is required to be
       made by the terms of the insured mortgage or at
       such later date as may be agreed to by you HUD
       in writing, we the mortgagee shall require a
       monthly deposit with us or in a depository
       satisfactory to us of one-twelfth (1/12) of the
       sum set forth in your HUD's Commitment for
       Insurance constituting a 'Reserve Fund for
       Replacements' which fund will be subject to our
       order and from which fund withdrawals may be
       made only upon the receipt of your written
       permission. These funds will be deposited with
       us by the Mortgagor in cash or in the form of
       obligations of or guaranteed as to principal by
       the United States of America. We will, upon
       appropriate request by the Mortgagor, permit the
       conversion of the whole or a substantial part of
       such cash deposits into the form of obligations
       of, or fully guaranteed as to principal by, the
       United States of America. Notice of any failure
       to receive the required deposits will be
       forwarded to the Commissioner within 60 days."

b.    "We the mortgagee understand that nothing
      herein contained or contained in the said credit
      instrument or Mortgage securing the same, or in
      the other contract documents, is to be deemed a
      waiver of any of the provisions of the aforesaid
      FHA Regulations, but all of said instruments are
      intended to be subject thereto. We hereby agree
      to conform with and abide by such FHA
      Regulations in all matters with respect to the
      aforesaid loan and the project in so far as they
      are applicable to us. We agree to furnish you
      with a complete report of the results of our
      annual inspection of the mortgaged premises
      required by the said Regulations."

c.    "We (the mortgagee certify that all insurance
      policies on the project required by the terms of
      the insured Mortgage will have attached thereto
      a standard Mortgagee clause making the loss
      payable to the Mortgagee and the Secretary,
      Department of Housing and Urban Development, as
      their interests may appear."

d.    "No financing charges other than charges
      disclosed herein have been or will be made."
       e.   "Whenever the terms 'Mortgage,' 'Mortgagor,' or
            'Mortgagee' are used herein, the same shall be
            deemed to include respectively: the security
            instrument whether the same be a Mortgage or a
            Deed of Trust; the Obligor of the debt secured
            thereby; the obligee, or the Trustee(s) and the
            Beneficiary of said credit instrument. The term
            'financing charge(s),' as used herein, shall
            mean any charge, direct or indirect, for
            supplying the loan to or servicing the loan for
            the mortgagor. Whenever used, the singular
            number shall include the plural, the plural the
            singular and the use of any gender shall be
            applicable to all genders."

4-5.   HUD's fiduciary responsibility includes monitoring
       and enforcement of the above provisions of the
       Mortgagee's Certificate as well as the Regulations
       applicable to specific Sections of the Act. HUD's
       fiduciary responsibility also includes the payment
       of claims made upon the insurance funds by mortgagees
       when these claims are proper and substantiated. The
       following Section of this Chapter provides a brief
       description of claims processing.

4-6.   In addition to its fiduciary responsibilities
       outlined above, HUD has other responsibilities to
       mortgagees and the mortgage industry as a whole.

       a.   HUD strives to cooperate with mortgagees and
            provide whatever assistance it can. This
            assistance may take the form of technical
            advice, or it may be an active intervention with
            a recalcitrant mortgagor on behalf of the
            mortgagee in a particular circumstance. For
            example, HUD staff might recommend a more
            effective method of collection efforts on a
            delinquent account to a mortgagee.

       b.   HUD provides information about changes in its
            requests, policies, or requirements to
            mortgagees through Mortgagee Letters that are
            issued as the need arises.

       c.   HUD tries to establish standards which may be
            adopted by the industry. The classic example of
            this was the introduction of the self-amortizing
            home mortgage under the early insurance programs
            of the Federal Housing Administration. Today
            one seldom sees a first mortgage on a single
            family home which is not self-amortizing. One
            recent example for multifamily mortgage programs
            is the use of bond revenues (bond financing) for
            the construction or acquisition of apartment
            communities. Another example is the popularity
            and use of Mortgage Backed Securities (M.B.S.'s)
            in the secondary market for mortgages on rental
            apartment complexes.


       d.   On the other hand, HUD also has a responsibility
            to interact with a mortgagee on behalf of a
            mortgagor where HUD can be of assistance to
            resolve a problem between the two. That is, HUD
            interacts with both mortgagees and mortgagors
            for the protection of the mortgage insurance
            fund and to assure that projects are financially
            solvent and maintained in a physical condition
            that provides affordable, safe, and sanitary
            housing for the tenants.

             Section 2.   Claims Processing

4-7.   This Section does not describe in detail nor set any
       standards for HUD's processing of claims made under
       multifamily mortgage insurance programs. It does not
       address assignments of mortgages under Section 221
       (g)(4); it does not address coinsured mortgage claims.
       It does provide a brief overview of the claims
       processes surrounding defaulted loans so that
       mortgagees may gain some insight into the
       Department's procedures. So that mortgagees will
       benefit from this knowledge, the Department is making
       this general information available to mortgagees
       before the occurrence of an assignment of a mortgage.

4-8.   Background. HUD provides mortgage and loan insurance
       protection to approved mortgagees through the Federal
       Housing Administration (FHA) Consolidated Revolving
       Fund and through the payment of mortgage insurance
       premiums (MIPs) by mortgagees after collection from
       mortgagors. Payments of multifamily claims for
       insurance benefits are authorized by various sections
       of the National Housing Act. The multifamily
       mortgage insurance program includes both fully
       insured and coinsured project mortgages. When a
       fully insured mortgage is in default, the mortgagee
       has the option of foreclosing the loan and conveying
       title to HUD or assigning the mortgage to HUD. The
       usual procedure, assignment, is both faster and
       usually less costly to the mortgagee than
       foreclosure.

4-9.   Once the mortgagee has made its election, HUD
       processes the claim for insurance benefits making
       sure that the mortgagee has met all its obligations
       and has properly supported its claim. After the
       mortgagee has assigned the mortgage to HUD, the
       mortgagee's servicing responsibilities cease. HUD
       establishes a servicing program and undertakes the
       collection functions formerly performed by the
       mortgagee. If the mortgagee forecloses and conveys
       title to the property to HUD, HUD becomes the owner
        of the project.

        a.   After HUD receives the mortgagee's election, HUD
             sends a fiscal data package to the mortgagee;
             the forms contained in this package must be
             completed and returned to HUD before the claim
             examination process for final settlement of
             insurance benefits can begin.

        b.   The mortgagee provides HUD with legal documents
             pertaining to the insurance claim; when HUD
             receives and reviews these documents, HUD sends
             the mortgagee a "date-setting" letter, advising
             the mortgagee to assign the mortgage or convey
             the project no later than the date set in this
             letter. On the date of assignment or
             conveyance, the mortgagee must notify HUD by
             telegram or telecopy (facsimile) that the
             assignment or deed was recorded.

4-10.   Based on the Section of the Act under which the
        Project was insured and on the insurance endorsement
        date, HUD determines if claims settlement is to be
        made in cash or by issuance of debentures.
        Debentures are obligations of the mortgage insurance
        funds and are unconditionally guaranteed by the
        United States. Debentures bear interest from the
        date of default at a rate established periodically by
        HUD. If the claim is paid in cash, the payment
        normally includes the amount of interest the
        mortgagee would have received if it had been paid in
        debentures. Interest is computed from the date of
        default to the date of payment.

4-11.   In order to minimize HUD's cost of interest accrual
        on claims to be made in cash, HUD may partially
        settle the mortgagee's claim. Partial settlements
        are not made for claims settled in debentures.

        a.   The partial settlement process begins with HUD's
             receipt of the mortgagee's telegram (or fax)
             notifying HUD that the assignment or deed was
             recorded.

        b.   If the project's mortgage has been finally
             endorsed for insurance, the partial settlement
             of claim usually consists of ninety percent
             (90%) of the unpaid principal balance plus
             debenture interest accrued from the date of
             default to the date of partial settlement.

        c.   If the project's mortgage has not been finally
             endorsed, the amount of the partial settlement
             is usually seventy percent (70%) of the unpaid
             principal balance plus interest.

4-12.   The mortgagee must submit all fiscal data and legal
        documents in support of its claim within forty five
        (45) days after the date of assignment or conveyance.

4-13.   Insurance benefits generally include the unpaid
        principal balance of the loan, plus advances made by
        the mortgagee, minus funds in escrow accounts, and
        minus receipts from other sources.

        a.   A mortgagee can elect to assign the mortgage to
             HUD. If the mortgage is assigned, the mortgagee
             will be charged one percent (1%) of the unpaid
             principal balance. This amount represents
             foreclosure expenses that the mortgagee would
             have incurred if the mortgagee had elected to
             acquire title to the property and convey the
             property to HUD.

        b.   A mortgagee can elect to convey title to HUD.
             Before it can convey title, the mortgagee must
             institute and complete foreclosure proceedings
             or obtain a deed-in-lieu of foreclosure from the
             mortgagor and take possession of the property.
             Because this method is so seldom chosen by
             mortgagees, further details regarding insurance
             benefits in these cases are not discussed in
             this Section. However, mortgagees considering
             this procedure may consult the Office of General
             Counsel's Multifamily Mortgage Division for
             further guidance.

        c.   HUD may request the mortgagee to assign the
             mortgage to HUD in lieu of foreclosing on the
             property, in which case all or part of the one
             percent (1%) deduction is waived.

4-14.   Miscellaneous claims. When the mortgagee notifies
        HUD of its intent to assign the mortgage to HUD, HUD
        may ask the mortgagee to accept a partial payment of
        the claim and modify the mortgage. HUD makes these
        requests only where this procedure would be less
        costly to HUD. Such a partial payment of claim may
        be made if the mortgagee voluntarily agrees to accept
        the proposal and if the mortgagor agrees to repay to
        HUD the amount of the partial payment. Upon such
        agreements, HUD establishes a second mortgage with
        terms that will assure that the estimated project
        income will be sufficient to cover operating expenses
        and the modified mortgage.
_______________________________________________________________________
____

        CHAPTER 5.   MORTGAGEE REMOTE MONITORING PROCEDURES

5-1.       There are seven main objectives of a program to
           monitor the servicing practices of multifamily
           mortgagees:

           a.   To establish a forum for providing mortgagees
                guidance and assistance in the understanding,
                application, and operation of the statutory,
                regulatory, and administrative requirements that
                govern the servicing of HUD-insured mortgages.

           b.   To maintain active, positive, and continual
                communications and liaison between the mortgage
                industry and HUD in an effort to obtain
                mortgagees' questions, comments, and
                recommendations regarding HUD's policies and
                procedures.

           d.   To develop solutions to problems at HUD Field
                Offices where possible.

           e.   To make sure that mortgagee practices comply
                with pertinent statutory, regulatory, and
                administrative requirements in the servicing of
                HUD-insured mortgages.

           f.   To protect HUD's interests by detecting,
                reporting, and preventing fraud, waste, and
                mismanagement.

           g.   To identify mortgagees to recommend to HUD's
                Inspector General for possible audits.

           h.   To ensure the timely and proper servicing of
                mortgages so that unnecessary claims against
                HUD's insurance funds do not occur.

5-2.       The U.S. Department of Housing and Urban Development
           has had a program for monitoring the performance of
           approved single-family mortgagees for many years.
           This program has included the review of origination
           and servicing practices. Before the issuance of this
            handbook, reviews of multifamily mortgagee servicing
            practices had been intermittent and sporadic. This
            chapter describes the procedures HUD is establishing
            for more systematic remote monitoring of the
            servicing practices of mortgagees that service or
            hold multifamily mortgages insured by HUD.

 5-3.       HUD's Field Offices communicate daily with the owners
            and managing agents of multifamily projects and with
            the mortgagees servicing the insured mortgages on the
            properties. The Field Offices also communicate
        frequently with the mortgagees investing in these
        mortgages when the servicing mortgagee is not the
        holding mortgagee. Because of this close
        involvement, HUD Field Offices are central to the
        mortgagee review process.

        a.    Field Offices are uniquely qualified to identify
              issues encountered with many of the servicing
              practices of different mortgagees. Sometimes
              problems may occur in the HUD-mortgagee
              relationship, such as missing or low quality
              mortgagee physical inspections of projects by
              mortgagees. Sometimes problems arise in
              mortgagee-mortgagor relationships, such as the
              propriety of a mortgagee's methods for escrow
              analyses and disposition of escrowed funds.
              Perhaps the most common occurrence of this
              latter problem is the case of the Field Office's
              explaining to a mortgagor that its mortgagee is
              correct in not having to refund some excess
              funds held in escrow directly to the mortgagor
              and is within its rights under the terms of the
              mortgage instrument when it does not make this
              refund.

        b.    Field Offices are usually a Primary source of
              information for mortgagees, particularly for
              information about specific projects, project
              owners, and managing agents. For example, a
              mortgagee may often need to know the status of
              HUD's decision about a mortgagor's request for a
              rent increase, a withdrawal from the Reserve
              Fund for Replacements, or a TPA (Transfer of
              Physical Assets).

5-4.   The primary responsibility of HUD's Field Offices in
       mortgagee monitoring is limited to remote monitoring
       from within the HUD Field Office and reporting the
       results of these reviews to their Regional Offices.

5-5.   The Loan Management Branch Chiefs of each Field
       Office should establish and maintain a separate file
       for each mortgagee that services or holds a mortgage
       on a multifamily project that is in the Field
       Office's jurisdiction and whose mortgage is insured
       under any of the Sections of the Act listed in
       Chapter 1, Table 1 of this handbook.

       a.    To simplify the initial establishment of these
             files and to assure that all mortgagees are
             identified, the Headquarters Office of Mortgage
             Insurance Accounting and Servicing will provide
             a list of mortgagees holding or servicing
             finally endorsed project mortgages to each HUD
             Field Office. Headquarters will send a copy of
             these lists to the appropriate HUD Regional
             Offices.
            b.    These lists will contain the following
                  information: (Sample information is shown for an
                  example)

                  1.   Servicing Mortgagee Name: Escrow-Rite
                       Mortgage
                  2.   Servicing Mortgagee No.: 12345-6789-0
                  3.   Mortgagee Mailing Address: P. O. Box 7,
                       Anytown
                  4.   Project Mortgages Serviced:

Proj. No.              Proj. Name               Holding Mortgagee
066-28001              Shifting Sands           Buy-Rite Mtg.
                                                12346-5789
022-49123              Piney Breezes            Buy-Rite Mtg.
                                                12346-5789
126-75432              Cliff Heights            Escrow-Rite Mtg.,
                                                12345-6789
                             AND

            5.   Holding Mortgagee   Name: Buy-Rite Mortgage
            6.   Holding Mortgagee   No.: 12346-5789-0
            7.   Mortgagee Mailing   Address: P. O. Box 13, Anytown
            8.   Project Mortgages   Held:

Proj. No.              Proj. Name            Servicing Mortgagee
066-28001              Shifting Sands        Escrow-Rite Mtg.
                                             12345-6789
022-49123              Piney Breezes         Escrow-Rite Mtg.
                                             12345-6789
116-08004              Snowy Peaks           Mountain Mtg. Co.
                                             54321-9876

            c.   Field Offices should review these lists upon
                 receipt and verify the information for accuracy.
                 The Mortgage Credit Branch Chief is the
                 designated Mortgagee Approval Specialist; the
                 Mortgage Credit Branch should be able to verify
                 the mortgagee approval number for most of the
                 mortgagees shown on the list provided by
                 Headquarters. The Loan Management Branch should
                 be able to verify the accuracy of the addresses
                 of the mortgagees and the correlations with
                 projects. Obvious discrepancies should be
                 identified and correct information should be
                 obtained when necessary. For instance, if the
                 name of the servicing mortgagee shown on the
                 list is different from the name of the servicing
                 mortgagee shown in the project servicing files,
                 Loan Management staff should confirm which name
                 is correct. If the information on the list
                 provided by Headquarters needs to be changed,
                 the Loan Management Branch Chief should provide
                 the correct information to MIAS by a memorandum
                 or by electronic mail.
       d.   Headquarters will provide updated lists to Field
            and Regional Offices annually for projects whose
            mortgages are finally endorsed. Field Offices
            should review these lists and take any necessary
            corrective actions as indicated above.

5-6.   The organization of the multifamily mortgagee files
       is left to the discretion of the Loan Management
       Branch Chiefs. The contents of each file are left to
       the judgement of the Loan Management Branch Chiefs to
       an extent. The multifamily mortgagee file should be
       viewed as an "exception" file; it should contain
       information of an exceptional nature, both favorable
       and unfavorable, as applicable. The file would
       normally not contain routine items, such as copies of
       the Form HUD-9250. Each file is to include at least
       the following information:

       a.    The Headquarters-provided list of projects and
             cross references to other mortgagees for the
             subject mortgagee.

       b.    Names, titles, and telephone numbers of the
             mortgagee's employees with whom the Loan
             Management Branch has regular contact.

       c.    The geographical (physical) and mailing
             addresses of the mortgagee.

       d.    Correspondence to and from the mortgagee, and
             records of conversations between the mortgagee
             and Loan Management staff regarding issues of a
             relatively important nature. For example:

             1.   A mortgagee's extreme helpfulness and
                  cooperation in avoiding an assignment of an
                  insured mortgage.

             2.   A mortgagee's full and voluntary compliance
                  with delinquency alerting.

             3.   A mortgagee's prompt investment of a
                  mortgagor's reserve funds at nominal (or
                  no) costs to the mortgagor.

             4.   A mortgagee's low quality (or a complete
                  lack of) physical inspection, particularly
                  if a pattern of low quality inspections is
                  apparent.

             5.   A mortgagee's refusal to apply funds
                  received to sums due under the mortgage.

       e.    Correspondence to and from Regional and
             Headquarters Offices regarding the actions of
             the mortgagee.
        f.    Copies of documents evincing low quality actions
              taken by the mortgagee. For instance, a
              mortgagee's annual Physical Inspection Report
              (Form HUD-9822) might portray a project to be in
              excellent physical condition and HUD's
              Management Review Report (Form HUD-9834),
              Physical Inspection Report (Form HUD-9822), or
              copies of code-related citations from local
              government might disclose the existence of
              deplorable physical conditions at a time near
              the mortgagee's inspection. Copies of these
              types of documents should be placed in the
              mortgagee's file.

5-7.    The Primary purpose of the Loan Management Branches'
        remote monitoring of the servicing practices of
        multifamily mortgagees is to obtain corrective
        actions on the part of the mortgagees as problem
        areas are identified.

5-8.    The secondary purpose of the Loan Management
        Branches' remote monitoring of the servicing
        practices of multifamily mortgagees is to identify
        mortgagees that may need to be recommended for
        sanctions and to provide the bases for such
        recommendations. Field Office staff are not expected
        to conduct on-site reviews.

5-9.    There are five criteria for the Loan Management
        Branch Chief to use in evaluating the servicing
        activities of multifamily mortgagees:

        a.    Physical inspections of projects by mortgagees.

        b.    Escrow procedures of mortgagees.

        c.    Hazard insurance practices of mortgagees.

        d.   Collection efforts of mortgagees.

        e.   Reporting of defaulted loans by mortgagees.

5-10.   The first criterion for the Loan Management Branch
        Chief to use involves the physical inspections that
        mortgagees are required to make. The standards for
        application of this criterion are established in
        three phases.

        a.   Phase One was implemented with the issuance of
             Notice H 91-3 (HUD), "Field Office Control and
             Monitoring of Mortgagee Physical Inspections of
             HUD-Insured Projects," on January 15, 1991.
             This Notice required Field Offices to establish
             and implement a system for tracking the receipt
             and review of mortgagees' physical inspection
             reports.
        b.   Phase Two is being implemented with the issuance
             of this handbook in its present form.

        c.   Phase Three will be described in a future
             handbook change. A greater degree of detail
             about this criterion and additional software are
             contemplated in Phase Three.

5-11.   Phase Two Implementation.

        a.   The Loan Management Branch Chiefs of each Field
             Office with multifamily project servicing
             responsibility are to provide an annual report
             directly to the Headquarters Office of
             Multifamily Housing Management, Planning and
             Procedures Division. The Loan Management Branch
             Chiefs will use computer software provided by
             Headquarters in preparing this report. These
             reports will be issued under the authority of
             the Loan Management Branch Chiefs; the reports
             will contain the following information:

             1.   The total number of projects (within the
                  jurisdiction of the Field Office) for which
                  mortgagees' physical inspections were due
                  in the previous calendar year.

             2.   The total number of projects for which the
                  mortgagees, physical inspections that were
                  due in the previous calendar year were
                  received.

             3.   The total number of projects for which the
                  mortgagees' physical inspections that were
                  due in the previous calendar year were
                  fully acceptable. "Fully Acceptable" is
                  defined as including all of the following
                  characteristics:

                  (a)   The report is provided on Form
                        HUD-9822, "Physical Inspection Report,"
                        and is dated and signed by the
                        mortgagee.

                  (b)   The report was mailed to the mortgagor
                        and HUD within thirty days after the
                        inspection was conducted.

                  (c)   The report describes the physical
                        condition of the project in sufficient
                        detail to enable a person who is not
                        familiar with the project to form a
                        fair and accurate opinion of the
                        condition of the project.

                  (d)   The report is reasonably consistent
                        with other information known by the
           Field Office about the project.

4.   The total number of projects for which the
     mortgagees, physical inspections that were
     due in the previous calendar year were
     marginally unacceptable. "Marginally
     Unacceptable" is defined as having any of
     the following characteristics:

     (a)   The report is provided on Form HUD-9822
           and is signed by the mortgagee,
           but has some errors or omissions.

     (b)   The report was mailed to the mortgagor
           and HUD within forty five days but
           after thirty days from the date of
           inspection.

     (c)   The report does not contain enough
           detail for a person unfamiliar with
           the project to form a fair opinion of
           its condition, but it does enable a
           person who is familiar with the
           project to use the report for a
           reasonable description of the physical
           condition of the project.

     (d)   The report is substantively
           inconsistent with other information
           known by the Field Office about the
           project.

5.   The total number of projects for which the
     mortgagees, physical inspections that were
     due in the previous calendar year were
     unacceptable. "Unacceptable" is defined as
     having any of the following
     characteristics:

     (a)   The report was not provided on Form
           HUD-9822.

     (b)   The report was mailed to the mortgagor
           or to HUD more than forty five days
           from the date of inspection.

     (c)   The report is completely lacking in
           detail, e.g., it could have been
           prepared on the basis of a "drive-by."

     (d)   The report is very inconsistent with
           other information known by the Field
           Office about the project. For
           example, if the report were to imply
           that the project is decent, safe, or
           sanitary when in fact HUD has evidence
           to the contrary, the report would be
               unacceptable.

         (e)   The report contains other major
               deficiencies not specifically
               mentioned above. For example, if a
               report which otherwise might have just
               been "marginally unacceptable" because
               of its low quality also indicates that
               there was little or no attempt by the
               inspector to contact the project's
               management to arrange for full and
               proper access to the project, the
               report may be considered unacceptable.

b.   Loan Management Branch Chiefs of the Field
     Offices should use the following guidelines in
     deciding which mortgagees to recommend for the
     imposition of sanctions. If the combined total
     of one mortgagee's physical inspection reports
     falls into any of the following categories, that
     mortgagee should be considered for referral. If
     more than one condition is met, a degree of
     urgency may exist, depending on the severity of
     the discrepancy. The percentages shown below
     are representative of a mortgagee that services
     a relatively large number of multifamily project
     mortgages in the jurisdiction of the Field
     Office, say, twenty or more; the Loan Management
     Branch Chiefs should exercise customary good
     judgment in applying these factors to a
     mortgagee that services a smaller number of
     project mortgages. For example, a particular
     mortgagee might service only three project
     mortgages and might have sent one of its three
     physical inspection reports to the mortgagor and
     HUD more than forty five days after the date of
     the inspection. In this example, assume these
     reports were exemplary in every other respect.

     If the standards were applied rigidly, one of
     the reports would be classified "Unacceptable"
     because it was mailed late; this might have the
     effect of triggering a mortgagee referral under
     Guideline No. 2 in subparagraph "c" below. A
     Field Office's recommendation for sanctions
     against the mortgagee in these or similar
     circumstances is not the intent of these
     standards and guidelines.

c.   The Loan Management Branch Chiefs should
     generally recommend that administrative
     sanctions should be imposed when one or more of
     the following conditions remains uncorrected in
     the calendar year cycle for inspections by
     mortgagees and when the mortgagee is not making
     significant improvements despite Field Office
     efforts to help the mortgagee cure its
             deficiencies.

             1.   More than 5% of the reports were not
                  provided at all.

             2.   More than 10% of the provided reports were
                  provided later than 45 days from the date
                  of inspection ("Unacceptable" for time).

             3.   More than 10% of the provided reports were
                  unacceptable because of lack of quality.

             4.   More than 30% of the provided reports were
                  marginally unacceptable (or worse).

5-12.   The second criterion for the Loan Management Branch
        Chiefs to use in evaluating a mortgagee's servicing
        practices involves their perceptions of the adequacy
        of a mortgagee's escrow procedures.

        a.   Asset Managers (Loan Specialists) frequently
             learn about inadequate escrows from project
             mortgagors who complain about sudden,
             unexpected, and large escrow billings from their
             mortgagees.

             1.   Mortgagees sometimes create and report a
                  "default" by applying a normal mortgage
                  payment to a lump sum escrow shortage that
                  was calculated when the mortgagee revised
                  the escrow requirements. In actuality, a
                  default would occur in this circumstance
                  only when a mortgagor has not remitted
                  sufficient amounts to be placed in escrow
                  to pay the item before its due date;

             2.   If a mortgagee shows a pattern (over
                  several years or for several projects) of
                  any of the following practices, the Loan
                  Management Branch Chief should consider
                  recommending a mortgagee for sanctions:

                  (a)   Frequent or chronic escrow shortages.

                  (b)   Improper reporting of a "default"
                        caused by an increase in escrow
                        requirements.

        b.   Asset Managers (Loan Specialists) frequently
             learn about seemingly excessive escrow
             requirements either from a mortgagor who
             complains to HUD that too much money is held in
             escrow or from the Asset Manager's analysis of
             the annual audited financial statements of a
             mortgagor.

             1.   The general rule is that a mortgagee can
               require an escrow amount up to one-sixth in
               excess of the current estimated total
               annual requirement. Larger amounts are not
               to be held in escrow without the express
               request of the mortgagor that a larger
               amount be held.

          2.   If the amount being escrowed appears to be
               excessively large by applying the above
               standard, the mortgagee should provide HUD
               or the mortgagor, or both, a justification
               for holding the larger sum in escrow if
               asked to do so by either party.


     3.   The Loan Management Branch Chiefs should
          determine the reasonableness and financial
          soundness of the mortgagee's justification
          for holding apparently large sums in escrow
          with the understanding and knowledge that
          the mortgagee may not charge the mortgagor
          penalties for late payments of items due
          from escrow unless the penalty was the
          direct result of the mortgagor's error or
          omission. In other words, the mortgagee
          might often have to pay the penalties if
          there are insufficient funds on hand in an
          escrow account to pay the items due by the
          dates due.

c.   Asset Managers (Loan Specialists) are often told
     by project owners that the tax bills of projects
     were not paid in time to take advantage of
     available discounts even when the mortgagee had
     sufficient funds in escrow to pay these bills
     and obtain the discounts. Sometimes this
     information is stated in or confirmed by a
     Certified Public Accountant's Notes to the
     Financial Statements portion of the annual audit
     of the mortgagor.

     1.   When an Asset Manager (Loan Specialist)
          discovers that discounts were not obtained
          when they could or should have been, the
          Asset Manager should bring this information
          to the attention of the Loan Management
          Branch Chief. The Asset Manager should
          document the Mortgagee's File and the
          Project Servicing Files of the Field Office
          to reflect the amount(s) of the lost
          discount(s).

     2.   This information should be reflected in any
          recommendation for sanctions against a
          mortgagee that the Loan Management Branch
          Chief might make.
5-13.   The third criterion for the Loan Management Branch
        Chiefs to use in evaluating a mortgagee's servicing
        practices lies in the area of a mortgagee's
        compliance with HUD's hazard insurance requirements.
        These requirements are highlighted in Paragraph 2-16
        of this handbook.

        a.   The "acid test" for the Loan Management Branch
             Chiefs to use for this criterion is the amount
             of any losses actually suffered by the mortgagor
             or HUD because of a mortgagee's failure to meet
             the hazard insurance requirements of the
             Department.

             1.   The dates, amounts, and circumstances
                  surrounding any such losses should be
                  documented in the Mortgagee's File and in
                  the project servicing files of the Field
                  office.

             2.   This information should be highlighted in
                  any recommendation for sanctions against a
                  mortgagee that the Loan Management Branch
                  Chief might make.

        b.   Other considerations for application of this
             criterion include:

             1.   Sufficient amounts of coverage, including
                  reasonable deductibles.

             2.   Adequate and timely processing of property
                  insurance loss drafts by the mortgagee.
                  Responsibility for restoration of property
                  damage rests on the mortgagee and the
                  mortgagor. The receipt of any loss draft
                  settlement bearing the mortgagee's
                  endorsement is considered to be sufficient
                  evidence that the mortgagee is satisfied
                  with the restoration. Reminder: The
                  mortgagee is not permitted to charge the
                  mortgagor for processing a property
                  insurance loss draft, including any
                  physical inspections of the property the
                  mortgagee might make in connection with its
                  processing practices.

             3.   The mortgagee's prompt notification of HUD
                  of unavailability of insurance.

             4.   The relative cost of insurance premiums
                  when the insurance coverage is obtained by
                  the mortgagee rather than by the mortgagor.
                  This may be particularly important if a
                  relationship that is less than arms-length
                  exists between the mortgagee and the
                  insurer or the insurance agent. If the
                  existence of a related interest is known by
                  the Field Office, this fact should be
                  documented in the Mortgagee's File.

5-14.   The fourth criterion for the Loan Management Branch
        Chiefs to use in evaluating a mortgagee's servicing
        practices involves their perceptions of the adequacy
        of the mortgagee's collection efforts. This
        criterion is more judgmental than the first three
        criteria. Information about a mortgagee's collection
        efforts is frequently gained, informally, through
        conversations between the staff of the mortgagee and
        the staff of the Loan Management Branch. Many of
        these conversations are about the causes of default
        shown by a mortgagee when a mortgagee reports a
        default on Form HUD-92426, "Multifamily Default
        Status Report."

        a.   Asset Managers (Loan Specialists) should
             document carefully the major aspects of their
             conversations with mortgagees when these
             discussions concern a mortgagor's delinquent
             loan.

        b.   When Asset Managers (Loan Specialists) have
             reason to believe that a mortgagee has not
             adequately explored the causes of or remedies
             for a delinquency, the Asset Managers should
             bring their concerns to the attention of the
             Branch Chief.

        c.   It is often necessary for Loan Management Branch
             Chiefs themselves to discuss delinquent loans
             with mortgagees. These discussions are
             frequently, held when a loan is in default in
             order to explore means of effecting
             reinstatement and avoiding an assignment of a
             mortgage.

        d.   If it becomes apparent to the Loan Management
             Branch Chiefs that a mortgagee's collection
             efforts are inadequate, they should document the
             basis for reaching this conclusion in the
             Mortgagee's File. This information should be
             noted in any recommendation for sanctions
             against the mortgagee that the Loan Management
             Branch Chiefs might make.

        e.   CAUTION: HUD occasionally asks mortgagees to
             ask HUD to extend the mortgagee's deadline for
             electing to assign the mortgage to HUD; these
             extensions, when made, can provide an
             opportunity for HUD, the mortgagee, and the
             mortgagor to find a way to work the loan out of
             a default as well as to find longer term
             solutions to the underlying problems which led
             to the default. Refusal by a mortgagee to honor
             HUD's request to ask for an extension of the
             assignment deadline is not a reason to recommend
             that mortgagee for sanctions.

        f.   HUD will consider cooperation on the part of a
             mortgagee in acceding to such a request to be a
             mitigating factor if HUD imposes sanctions
             against the mortgagee when sanctions are
             warranted. Incidents of a mortgagee's
             cooperation in working out delinquent loans need
             to be documented in that mortgagee's file so
             that the mortgagee's cooperation can be brought
             to the attention of the appropriate HUD staff by
             the Loan Management Branch Chiefs.

5-15.   The fifth criterion for the Loan Management Branch
        Chiefs to use in evaluating a mortgagee's servicing
        practices is the accuracy shown by the mortgagee in
        preparing Form HUD 92426, "Multifamily Default Status
        Report." Mortgagees must prepare this report
        diligently and accurately. The mortgagee's file
        should be documented when these reports contain
        inaccurate information of any nature. All
        significant inaccuracies should be noted in any
        recommendations for sanctions the Loan Management
        Branch Chief might make.

5-16.   The Loan Management Branch Chiefs in HUD Field
        Offices are able to identify many of the strengths
        and weaknesses in multifamily mortgagees, servicing
        practices in five primary areas:

        a.   Physical inspections of projects.

        b.   Escrows.

        c.   Hazard insurance.

        d.   Collection efforts.

        e.   Default reporting.

5-17.   HUD Field Office Loan Management staff have gained an
        enormous amount of "hands-on" experience in two
        particular areas through their direct servicing of
        mortgages held by HUD: Physical inspections and
        collection efforts. HUD's Asset Managers (Loan
        Specialists) also have gained experience in analyzing
        tax and insurance escrow requirements of projects
        whose mortgages are HUD-held. When Asset Managers
        identify problem areas in the servicing practices of
        multifamily mortgagees, Asset Managers are expected
        to bring these problems to the attention of the Loan
        Management Branch Chief. The Branch Chief will
        thereby remain informed about the overall extent,
        nature, and severity of problem areas for mortgagees
        servicing project mortgages in the jurisdiction of
             the Field Office.

5-18.        The Loan Management Branch Chiefs of the Field
             Offices shall endeavor to develop local solutions to
             local problems that they have identified. The Branch
             Chiefs should, except in instances of particularly
             flagrant and serious infractions, afford a mortgagee
             a reasonable opportunity to comply with HUD's
             requirements before recommending the mortgagee for
             the imposition of civil money penalties or other
             sanctions.

        a.    If a number of mortgagees appear to have the
              same or closely related problems, the Loan
              Management Branch Chiefs might offer to
              participate in training workshops or conferences
              for mortgagees on particular topics. For
              example, if a group of mortgagees expresses an
              interest in holding a training session about
              physical inspections, the specifics of what
              staff from the Field Office would participate in
              the meeting can be worked out at the local
              level. While it remains the industry's role to
              train its mortgage servicing personnel, in some
              instances HUD may be able to offer technical
              assistance as part of these training efforts.

        b.    Loan Management Branch Chiefs should consider
              providing written guidance and instructions to
              mortgagees when this method of solving a problem
              might be appropriate. For instance, if a number
              of mortgagees have difficulty in establishing
              appropriate escrows, or if they are not
              reporting defaults accurately, a Field Office
              Letter to the mortgagees might be a more cost
              effective way to render assistance than would a
              workshop. Some Loan Management Branch Chiefs
              might want to start a "Mortgagee Newsletter" for
              mortgagees. A newsletter for mortgagees is just
              one way of establishing a forum for explaining
              the requirements that govern the servicing of
              HUD-insured project mortgages.

        c.    Problems often may need to be addressed on a
              case-by-case basis. For example, if a mortgagee
              provides a physical inspection report which is
              not satisfactory, the Asset Manager (Loan
              Specialist) could call the mortgagee, discuss
              the problems, and request a corrected report.
                 If this action is not successful in obtaining a
                 corrected report, the Loan Management Branch
                 Chief should write the mortgagee and ask for a
                 revised report that makes all necessary
                 corrections. Under no circumstances should the
                 original (first) physical inspection report be
                 returned to the mortgagee. If and when the
                 mortgagee provides an acceptable report, a copy
             of the unacceptable report should be placed in
             the Mortgagee's File together with a copy of the
             report that is acceptable. When taken together,
             these kinds of discrepancies provide the
             documentation that supports the Loan Management
             Branch Chiefs' recommendations for the
             imposition of sanctions.

        d.   Asset Managers (Loan Specialists) shall examine
             Forms HUD-92426, "Multifamily Default Status
             Report," on the same day they are received. If
             the form reports a default (rather than a
             reinstatement), the Asset Manager shall confirm
             the accuracy of all data elements within one
             business day. If any discrepancies are found,
             the Asset Manager shall bring these to the
             immediate attention of the Loan Management
             Branch Chief, who should then call the mortgagee
             and ask that a corrected Notice of Default be
             provided within three business days (sooner if
             possible). Copies of the incorrect and
             corrected Notices of Default should be filed in
             the Mortgagee's File. Errors contained on the
             Form HUD-92426 when reinstatement is being
             reported should not be ignored, but these errors
             do not have the priority for correction that
             exists when a mortgagee is reporting a default.

5-19.   CAVEAT: Nothing in this handbook supersedes or
        revises the responsibilities of all HUD employees as
        those responsibilities are set forth in Chapter 3 of
        HUD Handbook 2000.3, Office of Inspector General
        Activities.

        a.   Within the limits of their authority and duties,
             all employees of the Department are responsible
             for: (1) taking appropriate action to foster
             the enforcement of laws, executive orders,
             regulations, and other applicable directives;
             (2) maintaining high standards of ethical
             conduct; and (3) promoting efficiency and
             effectiveness in the administration of the
             Department's programs and activities.

        b.   These responsibilities require that all
             employees: (1) promptly report to their
             supervisors or directly to the OIG, instances
             of, and information on, any known Or suspected
             violations of law, rules, or regulations, gross
             mismanagement, waste of funds, abuse of
             authority or substantial and specific danger to
             the public health and safety; and (2) assist the
             OIG, when requested, in any subsequent audit,
             investigation, or other review of such matters.

5-20.   Types of recommendations for sanctions. The Loan
        Management Branch Chiefs may make one of two types of
        recommendations for the imposition of sanctions: (1)
        critical; or (2) routine. All recommendations shall
        be in writing. Recommendations for sanctions against
        mortgagees generally should be made only after local
        efforts to resolve issues of a mortgagee's lack of
        compliance with HUD requirements have not been
        successful.

        a.   Loan Management Branch Chiefs may recommend
             sanctions against a mortgagee at any time when,
             in their judgement, there is an urgent need for
             a sanction. This condition would exist if there
             is an immediate risk of loss to the insurance
             funds or a clear and present danger of a loss of
             subsidized housing because of a mortgagee's
             servicing practices. This condition also could
             exist if a mortgagee appears to have a complete
             and utter disregard for HUD's mortgage servicing
             requirements and is unwilling or unable to take
             corrective action. The first page of any
             recommendation that is deemed critical shall be
             marked with the word, "URGENT," in lettering of
             a prominent size.

        b.   Recommendations for sanctions that are routine
             in nature should be made quarterly as described
             below.

5-21.   Quarterly Summary Report. Loan Management Branch
        Chiefs shall prepare a summary report about those
        mortgagees they are recommending for sanctions.
        These reports should be received by the Regional
        Office within thirty days after the end of each
        quarter.

5-22.   Contents of the Quarterly Summary Report. The Loan
        Management Branch Chiefs must describe the servicing
        activities and practices of any mortgagee they are
        recommending for sanctions in enough detail to permit
        an informed decision about imposing sanctions.

        a.   The Quarterly Summary Report has a cover sheet
             showing the following information:

             1.   The number of mortgagees being recommended
                  for sanctions.

             2.   The names of each mortgagee.

             3.   Each mortgagee's Mortgagee Number (from the
                  Institutional Master File).

             4.   The total number of project mortgages (in
                  the jurisdiction of the Field Office)
                  serviced by each mortgagee.

             5.   The number of subsidized mortgages (in the
                        jurisdiction of the Field Office) serviced
                        by each mortgagee.

                   6.   The number of unsubsidized multifamily
                        mortgages (in the jurisdiction of the Field
                        Office) serviced by each mortgagee.

                   7.   The city and state in which each mortgagee
                        is located.

              8.   Whether the office of the mortgagee is a
                   branch office or the main office of the
                   mortgagee.

        b.    For each mortgagee being referred, the Loan
              Management Branch Chiefs should prepare a
              separate narrative description of the reasons
              for recommending sanctions. This narrative must
              describe the major problems encountered with the
              mortgagee, corrective actions requested of the
              mortgagee by the Field Office, and the extent of
              the mortgagee's cooperation or lack thereof in
              taking corrective action; the narrative must
              cite the specific regulation, handbook
              requirement, or other HUD issuance that has been
              violated. The narrative also should state
              whether the mortgagee is a servicing mortgagee
              only, an investing mortgagee only, or both a
              servicer and an investor. Any defaults or
              assignments involving the mortgagee within the
              preceding calendar year should be listed,
              together with a brief description of the
              circumstances surrounding the default(s) and
              assignment(s). The narrative should describe
              the mortgagee's voluntary compliance with HUD's
              Delinquency Alert request; it should describe
              the mortgagee's acceptance or denial of any
              requests from HUD to the mortgagee for the
              mortgagee to ask HUD to extend election decision
              deadlines. The narrative also should mention
              instances of the mortgagee's cooperation. A
              complete, objective description is necessary.

        c.    For each mortgagee being referred, the Loan
              Management Branch Chiefs must provide copies of
              documents supporting the referral. If the
              documentation is voluminous, a representative
              sample of the documents may be sufficient.
              Field Office Counsels should be consulted when
              deciding the appropriate level and kinds of
              documentation.


5-23.        Distribution of recommendations for sanctions. The
             Loan Management Branch Chief shall send the original
             memorandum, together with the supporting
             documentation, recommending administrative sanctions
        against a mortgagee directly to the Regional Director
        of Housing. Copies of the request, without the
        supporting documentation, are to be sent to all of
        the following:

        a.   The Housing Management Division Director of the
             Field Office, for information.

        b.   The Manager or Director of the Field Office, for
             information.

        c.   The Chief, Mortgage Credit Branch, of the Field
             Office, for information and inclusion in the
             annual review and comment processes described in
             HUD Handbook 4060.1, Mortgagee Approval
             Handbook, paragraph 4-4.

        d.   The Director, Operations Division, office of
             Multifamily Housing Management, in HUD
             Headquarters.

5-24.   Positive Control and Null Reports. As a control for
        the submission and receipt of the Quarterly Summary
        Reports from the Field Offices, the Loan Management
        Branch Chiefs shall submit a "Null" or "Negative"
        Report if they are not recommending any mortgagees
        for sanctions through the mechanism of the Quarterly
        Summary Report. The Null Report is a one-sentence
        memorandum: "The 'XYZ' Field Office is not
        recommending any multifamily mortgagees for sanctions
        at this time." The Null Report is due within thirty
        (30) days after the end of each quarter and is to be
        distributed as shown in the preceding paragraph.

5-25.   The primary responsibility for Regional participation
        in the multifamily mortgagee monitoring process is
        vested in the Regional Directors of Housing. The
        Regional Offices have five main activities:

        a.   Analyze the Field Office recommendations for
             sanctions.

        b.   Forward recommendations which are deemed to have
             sufficient merit to the Operations Division,
             Office of Multifamily Housing Management, in
             Headquarters.

        c.   Ensure that the Field Offices are in compliance
             with the requirements of this handbook.

        d.   Coordinate or sponsor region-wide training
             workshops or newsletters as a need for or
             interest in these kinds of programs develops.

        e.   Provide technical assistance and advice to the
             Loan Management Branch Chiefs.
5-26.   The Regional Directors of Housing should review the
        Quarterly Summary Reports and special requests for
        sanctions provided by the Field Offices. These
        reports should be analyzed for patterns of weaknesses
        in the servicing activities of multifamily
        mortgagees. Some mortgagees service multifamily and
        single-family mortgages. Some mortgagees service
        mortgages that are under the jurisdiction of more
        than one Field Office. If a mortgagee shows a
        pattern of servicing deficiencies in the two
        different kinds of mortgages or across several Field
        Offices, the Regional Directors of Housing should
        ordinarily notify the Office of Multifamily Housing
        Management of their conclusions.

        a.   For example, if one mortgagee is reported by
             several Field Offices to have a weakness in
             escrow analysis in multifamily and single-family
             loan programs, the Regional Director of Housing
             should write a memorandum to the Office of
             Multifamily Housing Management describing the
             extent of the problem. If necessary, the
             memorandum could mention a need to assign a high
             priority for imposing sanctions against the
             mortgagee.

        b.   On the other hand, one mortgagee may be
             servicing a relatively large number of
             multifamily mortgages in all or nearly all the
             Field Offices in the Region. In this example,
             perhaps only one Field Office recommended the
             mortgagee for sanctions while the other Field
             Offices did not make such recommendations. Here
             the Regional Director of Housing should
             determine the reasons for the discrepancies
             within the Region and take appropriate actions.

5-27.   Regional offices conduct periodic on-site reviews of
        Field Offices. Regional staff shall ensure Field
        Office compliance with the practices and procedures
        described in this handbook during the course of these
        reviews.

5-28.   Regional Directors of Housing can help coordinate
        training programs for mortgagees if an interest in
        this activity develops in the industry. Similarly,
        the Regional Directors of Housing could sponsor a
        newsletter if mortgagees express an interest in this
        forum.

5-29.   Regional Offices can provide guidance and assistance
        to the Loan Management Branch Chiefs. This support
        could, for instance, be in the form of helping
        develop software applications for tracking and
        reporting requirements. Regional Directors of
        Housing also may help Loan Management Branch Chiefs
        resolve problems with mortgagees at local or regional
         levels.

5-30.    The Office of Lender Activities is responsible for
         processing recommendations for administrative
         sanctions against mortgagees. It serves as the staff
         to the Mortgagee Review Board (MRB) and the Housing
         Civil Penalties Panel (HCCP). OLA may request the
         assistance of HUD's Inspector General when this help
         is deemed necessary.

5-31.     The Office of Lender Activities receives and reviews
          information about imposing sanctions against
          multifamily mortgagees from the Office of Multifamily
        Housing Management. OLA may present these
        recommendations to the Mortgagee Review Board or the
        Housing Civil Penalties Panel; the Office of Lender
        Activities may take such other actions it deems
        necessary. The Office of Lender Activities will
        conduct on-site reviews of multifamily mortgagees
        based on referrals from the Office of Multifamily
        Housing management.
_______________________________________________________________________
____

                        CHAPTER 6.   ENFORCEMENT

                          Section 1.   General

6-1.        Statutory. This chapter establishes various
            procedures to implement Section 107 of the Department
            of Housing and Urban Development Reform Act of 1989
            (Public Law 101-235, approved December 15, 1989).
            Section 107 of that Act was implemented with the
            publication of a Final Rule in the Federal Register
            on May 22, 1991 (56 FR 99, 23662-23642). This Rule
            added a new Part 30, "Civil Money Penalties: Certain
            Prohibited Conduct," to Title 24 of the Code of
            Federal Regulations. A copy of this Rule is
            contained in Appendix 6 of this handbook.

6-2.        Background. Before the enactment of the Reform Act
            and the addition of 24 CFR Part 30, the Department of
            Housing and Urban Development had established a
            Mortgagee Review Board. Except for the coinsurance
            program, that Board had been the sole organization
            that was authorized within HUD to take administrative
            action against HUD-approved mortgagees (and Title I
            lenders) who violate the Department's requirements.
            Regulations governing the Board's activities are
            contained in 24 CFR Part 25. HUD Handbook 4060.2
            REV-1, Mortgagee Review Board, was issued on
            September 10, 1985. This handbook restates that the
            Office of Lender Activities and Land Sales
            Registration serves as staff to the Board and
            describes the operations of the Mortgagee Review
            Board.

6-3.        Previously Available Sanctions. Depending on the
            nature and extent of a lender's violations, the
            Mortgagee Review Board could impose one or more of
            the following four sanctions against lenders:

            a.    Reprimand. The Board issues a letter of
                  reprimand informing the lender of a violation of
                  HUD requirements and directing the lender to
                  conform to all HUD requirements. A lender's
                  lack of compliance with the terms of the letter
                  could result in more serious sanctions.

       b.        Probation. When a lender is placed on
                 probation, it is for a specified time during
                 which HUD evaluates its compliance with HUD's
                 requirements. Additional requirements may be
                 imposed by HUD during the probationary period to
                 aid HUD's continuing evaluation of a lender's
                 performance. These additional requirements
                 include but are not limited to:
             1.    HUD supervision of the lender's activities.

             2.    Periodic reporting to HUD.

             3.    Sending HUD internal audits, audits by an
                   Independent Public Accountant, or other
                   audits.

       c.    Suspension. Suspension is temporary; it is used
             when there is adequate evidence that the public
             interest or HUD's best interest would not be
             served by providing insurance coverage on new
             mortgages (or Title I loans) pending completion
             of any: (1) audit; (2) investigation; (3) other
             review; or (4) administrative or legal
             proceedings. A suspension is for a specified
             period of one year or less. The Board may
             extend a suspension for an additional six months
             if it determines an extension is in the public
             interest.

       d.    Withdrawal of Approval. The Board may withdraw
             HUD-FHA approval from a lender for a specified
             time commensurate with the seriousness of the
             lender's infractions; the time is generally less
             than six years, but approval may be withdrawn
             for an indefinite period for egregious or
             willful violations.

             1.    A lender may file a new application for
                   approval after the period of withdrawal of
                   approval has expired.

             2.    Where withdrawal of approval is for an
                   indefinite period, a lender may, after six
                   years, ask the Board to set a specific date
                   for expiration of the withdrawal.

6-4.        Current Sanctions. The 1989 Reform Act and the new
            Part 30 of Title 24 of the Code of Federal
            Regulations provide for a new sanction while
            retaining the four previous sanctions described
            above. The new sanction is "Civil Money Penalties."
            When violations exist:

            a.    Civil money penalties may be imposed against
                  servicing or holding mortgagees by the Mortgagee
                  Review Board. However, the Mortgagee Review
                  Board will propose civil money penalties only
                  when civil money penalties are being proposed in
                  conjunction with other administrative sanctions
                  the Board is authorized to impose.

            b.    Civil money penalties may be imposed against
                  servicing or holding mortgagees by the Housing
                  Civil Penalties Panel (HCCP). This Panel is
            authorized to act when the Mortgagee Review
            Board does not propose other authorized
            administrative sanctions.

6-5.    The amounts of civil money penalties that may be
        assessed against mortgagees shall not exceed $5,000
        for each violation, except that the maximum penalty
        for all violations by any particular lender during
        any one-year period shall not exceed $1 million.

6-6.    HUD's Field and Regional Offices may recommend that
        sanctions should be imposed against mortgagees
        servicing or holding insured multifamily mortgages.
        HUD Headquarters organizations also may recommend the
        imposition of sanctions against lenders; for
        instance, the Headquarters Office of Mortgage
        Insurance Accounting and Servicing (MIAS) may
        recommend the imposition of civil money penalties
        against mortgagees who fail to pay the Mortgage
        Insurance Premiums by the dates due.

6-7.    All Field Office originated recommendations for
        sanctions against insured multifamily mortgagees are
        to be sent to their Regional Directors of Housing.
        The Regional Offices will review the recommendations
        and, when appropriate, forward them to the Operations
        Division of the Office of Multifamily Housing
        Management in Headquarters. Sanction recommendations
        will then be reviewed and forwarded to the Office of
        Lender Activities. OLA may then refer the matter to
        the relevant sanctioning panel (the Mortgagee Review
        Board or the Housing Civil Penalties Panel) or take
        such other actions as it deems appropriate.

           Section 2.   HUD Field Office Actions

6-8.    The Loan Management (LM) Branch Chiefs of the HUD
        Field Office have the authority to recommend the
        imposition of sanctions against mortgagees to the
        Regional Director of Housing. The LM Branch Chiefs
        should normally discuss such proposed recommendations
        with the Legal Divisions of the Field offices before
        forwarding their recommendations. Field Office
        Counsels can assist the LM Branch Chiefs in preparing
        their recommendations and can provide advice about
        what evidence and documentation should accompany the
        Branch Chiefs' recommendations.

6-9.    Distribution of recommendations for sanctions.
        Recommendations for imposition of sanctions against
        mortgagees are to be distributed as specified in
        paragraph 5-23 of this handbook.

6-10.   The Loan Management Branch Chiefs may include
        specific recommendations for the imposition of civil
        money penalties when they recommend a mortgagee for
        other administrative sanctions. If they choose to do
so, their memorandums recommending sanctions should
state that imposition of civil money penalties also
is recommended. There may be other occasions when
the sanction of civil money penalties only is the
most appropriate remedy for HUD to use.

a.    For example, suppose the remote monitoring
      activities conducted by a HUD Field Office
      disclose that a mortgagee is submitting flawed
physical inspection reports to the Field Office
and is unwilling or unable to correct the
deficiencies. Also suppose that this is the
only area of weakness in the mortgagee observed
by that HUD Office. The Loan Management Branch
Chief of the HUD Office has a choice of several
actions. He may: (1) refer the matter to the
Regional Director of Housing and ask for
assistance; or (2) refer the matter to the
Regional Director of Housing and recommend that
civil money penalties or other administrative
sanctions be imposed against the offending
lender; or (3) decide that no further action is
warranted under the circumstances.

1.   Requesting the assistance of the Regional
     Director of Housing might be the preferred
     choice in this example. The Regional
     Directors are in a position to know if the
     problem is isolated or widespread; they can
     coordinate actions with other Field Offices
     if necessary.

2.   In this example if the deficiencies in the
     physical inspection reports were extensive
     or serious, the appropriate choice might be
     to refer the case to the Regional Director
     of Housing with a recommendation for the
     imposition of civil money penalties. The
     Field Office should provide copies of its
     documentation when making a recommendations
     for imposing civil money penalties.

3.   If the deficiencies in the mortgagee's
     inspection reports were relatively minor or
     trivial, the Loan Management Branch Chief
     may not need to take any action at all.
     The Branch Chief needs to remember that the
     time that elapsed between HUD's and the
     mortgagee's physical inspections of a
     property could account for some of the
     differences between the inspection reports.

b.   For another example suppose that moderate to
     serious deficiencies exist with the physical
     inspection reports submitted by a mortgagee and
     that problems in other servicing areas (escrows,
     hazard insurance, debt collection, default
            reporting) regarding that mortgagee also are
            detected by the Field Office. The preferred
            course of action here might be for the Loan
            Management Branch Chief to recommend the
            imposition of administrative sanctions together
            with the imposition of civil money penalties
            against the mortgagee.

          Section 3.   HUD Headquarters Actions

6-11.   The Office of Lender Activities receives
        recommendations for the imposition of sanctions
        against multifamily mortgagees. This handbook, which
        provides instructions and guidance to multifamily
        mortgagees and to HUD Field offices, does not
        prescribe any policies, practices, or procedures for
        the Office of Mortgage Insurance Accounting and
        Servicing, the Office of Lender Activities, the
        Mortgagee Review Board, or the Housing Civil
        Penalties Panel. The Director, Office of Lender
        Activities, examines recommendations for the
        imposition of sanctions against mortgagees holding or
        servicing insured multifamily mortgages in accordance
        with the procedures established by that Office.

6-12.   The Director, Office of Lender Activities, is
        expected to inform the Director, Office of
        Multifamily Housing Management, of the results of
        Field Office recommendations for sanctions against
        multifamily mortgagees.

6-13.   The Director, Office of Multifamily Housing
        Management, will provide appropriate information to
        the Department's Regional and Field Offices from time
        to time.
_______________________________________________________________________
____

                      LIST OF APPENDICES

Appendix 1.    Form HUD-9822, Physical Inspection Report

Appendix 2.    Form HUD-92426, Multifamily Default Status
               Report

Appendix 3.    Form HUD-9807, Request for Termination of
                    Multifamily Mortgage Insurance

Appendix 4.    Form HUD-92080, Mortgagee Record Change

Appendix 5.    Fiscal Data Package, Sample Forms:
          A.   HUD-2741, Instructions for Applications for
               Insurance Benefits (Multifamily Mortgages)
         B.    HUD-2747, Application for Insurance Benefits
               (Multifamily Mortgage)
         C.    HUD-2537, Mortgagee's Application for Partial
               Settlement (Multifamily Mortgage)
         D.    HUD-434, Statement of Taxes
         E.    HUD-2742, Fiscal Data in Support of Claim for
               Insurance Benefits (Multifamily Mortgage)
         F.    HUD-2744A, Allocation of Mortgagee Receipts and
               Disbursements, Schedule A
         G.    HUD-2744B, Mortgagee's Report of Project
               Collections, Schedule B
         H.    HUD-2744C, Mortgagee's Report of Project
               Disbursements, Schedule C
         I.    HUD-2744D, Other Disbursements by Mortgagee
         J.    HUD-2744E, Mortgagee Report of Special Escrows,
               Schedule E

Appendix 6.    Civil Money Penalties, Final Rule:   24 CFR Part
               30

Appendix 7.    Selected Mortgagee Letters


                               APPENDIX 1

                             Form HUD-9822


                       Physical Inspection Report


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                                      1

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   APPENDIX 1
   4350.4
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                                      2
                               APPENDIX 2

                             Form HUD-92426

_______________________________________________________________________
___

                                                           APPENDIX 2
                                                           4350.4

_______________________________________________________________________
___

                     Multifamily Default Status Report

 Click Here to Download PDF Form

_______________________________________________________________________
___

                                   1                              2/92

_____________________________________________________________________

   APPENDIX 2
   4350.4
_______________________________________________________________________
____
Public reporting burden for this collection of information is estimated to average 0.125 hours per response, including the time for reviewing instructions, searching existing
data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate
or any other aspect of this collection of information, including suggestions for reducing this burden, to the Reports Management Officer, Paperwork Reduction Project
(2502-0416), Office of Information Technology, U.S. Department of Housing and Urban Development, Washington, D.C. 20410-3600. This agency may not conduct
or sponsor, and a person is not required to respond to, a collection information unless that collecton displays a valid OMB control number.
Do not send this form to the above address.

Refer to the tables below. If your project meets any of the special conditions, you may need prior approval of the HUD Secretary to
terminate your multifamily mortgage insurance. If so, do not submit this form at this time. Instead, submit a written request and a
copy of the mortgage note to the appropriate address listed below. After you receive written approval, then you may submit this form.


Section of               Project No. Series            Special Conditions Requiring prior approval of the HUD Secretary
the Act
207/223f                 10501          10999          Coinsurance and full insurance projects with commitments to insure issued after October 8,
                         11001          11999          1980, unless five years have elapsed since the date of endorsement (20 years in the case of a
                                                       mortage purchased by GNMA pursuant to Section 305 of the National Housing Act).

231                      38001          38999          All Projects which are Non-profit.

232                      43001          43999          All Projects which are Non-profit.

Title XI                 51001          51999          All


       Send To:
       U.S. Department of Housing and Urban Development
       Office of Multifamily Housing Management, HMH
       451 7th Street, S.W.
       Washington, D.C. 20410


Section of               Project No. Series            Special Conditions Requiring prior approval of the HUD Secretary
the Act

221/(d)(3)MR             35001          36599          Almost all projects, except certain projects which are owned by limited dividend owners and do
                                                       not receive project-based Section 8 or Rent Supplement Assistance.

236                      44001          44799          All
                         44801          44899          All
                         45001          45999          All
                         58501          58999          All

221(d)(3)BMIR            55001          55999          All
                         57501          57999          All

       Send To:
       U.S. Department of Housing and Urban Development
       Office of Multifamily Housing Preservation and Property Disposition, HMP
       451 7th Street, S.W.
       Washington, D.C. 20410




Owners and mortgagees are to refer to the following documents for information on the qualifications for prepayment before completing
this form:

       HUD Handbook 4350.1;
       Section 250(a) of the National Housing Act;
       Title II of the Housing and Community Development Act of 1987;
       Federal regulations at 24 CFR Part 248; and
       Title VI of the National Affordable Housing Act of 1990.


                                                 Submit one copy of this form to the Multifamily Accounting and Servicing                            form HUD-9807 (4/92)
Previous editions are obsolete.                  Division and to the Washington Docket. The Mortgagee should retain a copy                             ref. Handbook 4350.4
                                                                                   Page 2 of 2
Insurance Termination Request                                            U.S. Department of Housing                              OMB Approval No. 2502-0416 (exp. 05/31/98)
                                                                         and Urban Development
for Multifamily Mortgage                                                 Office of Housing
                                                                         Federal Housing Commissioner

Warning: HUD will prosecute false claims and statements. Conviction may result in criminal and/or civil penalties. (18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729, 3802)

1. Do not submit this form if you are filing an Insurance Claim with                             •  Prior approval of the Secretary, if required (See reverse).
   HUD.                                                                                          •  Payment of all amounts due HUD for any mortgage insurance
2. Do not submit this form if prior approval of the HUD Secretary is                                premium(s) and/or late charges or interest.
   required. See Instructions on reverse to make this determination.
3. Otherwise, refer to the documents listed on the reverse and submit                           • If FHA/HUD owns preferred stock of the mortgagor corpora-
   this form and the required attachments to:                                                       tion, a certified or cashier's check made payable to the U.S.
                                                                                                    Department of Housing & Urban Development for $100 plus
     U.S. Department of Housing and Urban Development                                               due and unpaid dividends.
     Multifamily Insurance Operations Branch                                                 5. For voluntary terminations only, the original credit instrument
     P.O. Box 44124                                                                             must be submitted for cancellation of the HUD insurance endorse-
     Washington, D.C. 20026-4124                                                                ment. Termination will be effective on the date all requirements are
                                                                                                met. This instrument will be returned by certified mail.
4. Conditions for consideration of approval of termination request                           6. After the contract of insurance has been terminated by HUD, a
   • Receipt of this properly executed form and attachments                                     copy of this form will be returned to the sender.
      signed by a corporate officer.


1. Type of Request
     Prepayment Termination: Mortgage is paid in full and original credit instrument is cancelled.
     Voluntary Termination: Attach the original credit instrument for cancellation of insurance endorsement.

2. Date of This Request                            3. FHA Project No.                                 4. Mortgagee's Loan No. (if any)


5. Date of Prepayment in Full, if applicable       6. Original Amount of Mortgage                     7. Maturity Date



8. The following items are attached, or the statements are applicable:                            9. Program Information. Check a Yes or No on each of the following:
    Certified or cashier's check for $100 for redemption of the preferred stock issued               Yes      No
    to FHA/HUD by the mortgagor corporation plus any due and unpaid dividends.                                     Non-profit
                                                                                                                   Limited Distribution

    Original Credit Instrument. See Item 1, above.                                                                 Receiving Rent Supplement
    Prior Approval to Terminate, if required (See reverse)                                                         Receiving Section 8 Payments

Certifications:                                I certify that no dividends are due.        I certify that the amount remitted with this form is the full amount due.

The undersigned certifies that the information shown above is true and correct, and the undersigned agrees that upon request of HUD it will furnish documents to
support the responses shown above.
10. Name and Signature of Mortgagors (Complete only if this is a voluntary termination.)   11. Project Name
    (If corporate, give name of corporation and title of authorized officer who signs.)



X
12. HUD Holding Mortgagee Number (To be completed in all instances)                        13. HUD Servicing Mortgagee Number (To be completed only if submitted by servicer)


14. Name, Address and Zip Code of Holding Mortgagee (To be completed in all instances)     15. Name, Address and Zip Code of Mortgagee's Servicer (To be completed only if
                                                                                           submitted by servicer)




16. Signature & Title of Holding Mortgagee's Authorized Representative                     17. Signature and Title of Servicing Mortgagee's Authorized Officer


X                                                                                          X
For HUD Use Only: The contract of insurance, as identified above, has been terminated in accordance with this request and HUD regulations.
    The original document, showing cancellation of the HUD insurance endorsement, is attached.
    A refund of unearned insurance premium in the amount of $                           has been authorized for the account of the mortgagor and a
    U.S. Treasury check will be sent to your office. This refund and any HUD premium held in escrow may be credited or returned to the borrower.
Date Document Received           Effective Date of Termination           Signature of Designated HUD Official                                            Date




                                                     Submit one copy of this form to the Multifamily Accounting and Servicing                              form HUD-9807 (4/92)
Previous editions are obsolete.                      Division and to the Washington Docket. The Mortgagee should retain a copy                               ref. Handbook 4350.4
                                                                                       Page 1 of 2
Directive Number: [Prev Hit][Next Hit]4350.4


                                     APPENDIX 4

                                   Form HUD-92080

_______________________________________________________________________
___

                                                           APPENDIX 4
                                                           4350.4

_______________________________________________________________________
___

                             Mortgage Record Change

 Click Here to Download PDF Form
                             APPENDIX 5

                         Fiscal Data Package

_____________________________________________________________________

                                                           APPENDIX 5A
                                                           4350.4

_______________________________________________________________________
___

                  Instructions for
                  Applications for Insurance Benefits
                  Multifamily Mortgages


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                  Instructions for
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                  Multifamily Mortgages


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                  Instructions for
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                  Multifamily Mortgages
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                  Instructions for
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                  Multifamily Mortgages


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                  Instructions for
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                  Multifamily Mortgages


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                  Instructions for
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                  Multifamily Mortgages


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_______________________________________________________________________
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                  Instructions for
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                  Multifamily Mortgages


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    APPENDIX 5B
    4350.4

                  Application for
                  Insurance Benefits
                  Multifamily Mortgages


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                                                           APPENDIX 5C
                                                           4350.4


                  Mortgagee's Application for
                  Partial Settlement
                  Multifamily Mortgages


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    APPENDIX 5D
  4350.4

                         Statement of Taxes


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                                                           APPENDIX 5E
                                                           4350.4


                  Fiscal Data in Support of Claim
                  for Insurance Benefits
                  Multifamily Mortgage


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    APPENDIX 5F
    4350.4

                  Allocation of Mortgagee
                  Receipts and Disbursements


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                                                            APPENDIX 5G
                                                            4350.4


                  Mortgagee Report of
                  Project Collections


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    APPENDIX 5H
    4350.4

                       Mortgagee Report of
                       Project Disbursements


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                                                           APPENDIX 5I
                                                           4350.4


                     Mortgagee Report of
                     Special Escrow


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   APPENDIX 5J
   4350.4
_______________________________________________________________________
____

                     Mortgagee Report of
                     Other Disbursements


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                             APPENDIX 6

                           24 CFR Part 30

_______________________________________________________________________
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                                                         APPENDIX 6
                                                         4350.4
_______________________________________________________________________
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   Federal Register/Vol. 56, No. 99/ Wednesday, May 22, 1991/
                                                     Rules and
Regulations
_______________________________________________________________________
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                 Department of Housing and Urban Development

                 Office of the Secretary

                 24 CFR Part 30

24 CFR Part 30

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                               APPENDIX 7

                         Selected Mortgagee Letters

_____________________________________________________________________


APPENDIX 7
                                                                     4350.4

                     DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                                   WASHINGTON, D.C. 20410

                                                               July 26,
1976
OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING-FEDERAL HOUSING COMMISSIONER                      IN REPLY REFER
TO

                                                  Mortgagee Letter 76-14

  TO:          ALL APPROVED MORTGAGEES

  SUBJECT:     Project Mortgage Insurance Claims, Revised Election
               Filing Instruction

   This Letter applies only to mortgages insured pursuant to
Multifamily
   Sections of the National Housing Act. The written election decision
   of a mortgagee, to either assign a mortgage or acquire and convey
   title, is presently sent to the Director, Office of Loan Management,
   Department of Housing and Urban Development, Washington, D. C.
20410.
   It is our desire that local HUD Area and Insuring Offices receive
   simultaneous notification of this significant decision.

   Effective immediately, in addition to the written notification to
   the Office of Loan Management, mortgagees shall provide a copy of
each
   election notice to the appropriate HUD field office. This will
   represent a continuation of past practice by some mortgagees. Their
   courtesy copies have been helpful and we trust that extension of the
   procedure to all holders of insured project mortgages will not prove
   burdensome.

                                            Sincerely,

                                            James L. Young
                                            Assistant Secretary for
Housing
                                            -Federal Housing
Commissioner

                                 1


                   DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                                    WASHINGTON, D.C. 20410

                                                             July 14, 1978

OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING-FEDERAL HOUSING COMMISSIONER                         IN REPLY REFER
TO:

                                                     Mortgagee Letter 78-
10

     TO:        ALL APPROVED MORTGAGEES

     SUBJECT:   Payment of Claims Loans Insured Under Section 241

         Mortgage insurance benefits for loans insured under Section 241
     of the National Housing Act are currently paid with debentures.

        With respect to any claim for insurance benefits filed after
    July 15, 1978, where the project loan has received initial
endorsement
    for insurance (or initial/final in insurance upon completion
    cases) on or after such date, HUD will, until further notice, pay
    such claims in the same manner, cash or debentures, as the claim
    would be paid on the insured first mortgage.

                                             Lawrence B. Simons
                                             Assistant Secretary for
Housing
                                             -Federal Housing
Commissioner

                                         2

                       DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                                    WASHINGTON, D.C. 20410
                                       December 23, 1980

OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING - FEDERAL HOUSING COMMISSIONER                       IN REPLY REFER
TO:

                                                       Mortgagee Letter
80-49

 TO        :   ALL APPROVED MORTGAGEES

  SUBJECT:     Change in Method of Payment of Mortgage Insurance Premiums
With
               HUD Debentures

      The purpose of this letter is to advise approved mortgagees of
the
  Department's change in policy regarding acceptance of debentures for
  payment of mortgage insurance premiums under the "averaging method."
  Existing instructions in Chapter 13 of HUD Handbook 4110.2, The
  Mortgagees' Guide, provide that mortgagees may determine the face
amount
  of debentures to be submitted monthly for purchase in connection with
  mortgage insurance premiums paid by either of the two following
methods:
  (a) the amount of the premiums paid for the month rounded to the
nearest
  $100, or (b) the monthly average of premiums paid by the mortgagee
under
  the appropriate HUD insurance fund rounded to the nearest $100.
Because
  of frequent changes in ownership and servicing, it is no longer
possible
  to accurately determine averages.

      Effective on and after the date of this letter, HUD will not
approve
  any further requests for the submission of debentures under the
averaging
  method. Approvals that are presently in existence will remain in
effect
  until the date the current annual approval expires, but they will not
be
  renewed or extended. In addition, HUD will not accept debentures from
  mortgagees (including "participating mortgagees") or servicers,
unless
  they are the mortgagee or servicer on HUD's records on the premium
due
  date.

      The letter transmitting debentures to HUD and requesting that
they be
  purchased to the extent of current premiums paid should include the
  following information: due date and amount of premium, by Section of
the
  Act; payment information (check number and date paid); and name of
  holding mortgagee and servicer. The transmittal letter should also
  contain a list of the debentures submitted by fund and series showing
the
  following information: registered name to which issued; debenture
number;
  rate of interest; denomination and maturity date. Furnishing this
  information will expedite processing of the debentures to the
Treasury
  Department, HUD's agent, for redemption.

       Approved mortgagees are also reminded of the provisions of
Mortgagee
  Letter 80-31, dated July 31, 1980 governing the reporting of sales of
  HUD-insured mortgages and loans. It is very important that these
changes
  be, reported to HUD accurately and timely, since they not only
establish
  the basis for responsibility for payment of the premiums, they also
  establish the "eligibility" for the mortgagee who may submit
debentures
  to the extent of current premiums paid.
                                         3
                                          2

     In summary, debentures will be accepted only from mortgagees or
servicers of record on HUD's books on the date the premium is due, and
debentures submitted for purchase must be registered in the name of the
mortgagee or servicer on the premium due date. Authority letters
(detailed
in Handbook 4110.2), as appropriate, are required for each submission.
Operating in this manner -- based on actual premiums paid by the
mortgagee
or servicer -- is more in line with the original intent of the National
Housing Act, i.e., to provide a means for early redemption of
debentures to
enhance the cash flow of mortgagees for making more loans available to
prospective homeowners under HUD's mortgage insurance programs.

     The Mortgagees' Guide will be amended accordingly and until it has
been amended, the instructions in this letter will prevail. The
cooperation of all approved mortgagees in connection with the above
will be
sincerely appreciated.

                                              Lawrence B. Simons
                                              Assistant Secretary for
Housing
                                              -Federal Housing
Commissioner

                                         4


                     DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                                  WASHINGTON, D.C. 20410
                                     December 22, 1981

OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING - FEDERAL HOUSING COMMISSIONER                     IN REPLY REFER
TO:

                                                       Mortgagee Letter
81-40

   TO:         ALL APPROVED MORTGAGEES

   SUBJECT:    Redemption of Debentures in Exchange for the Payment of
               Mortgage Insurance Premiums

         This Mortgagee Letter is intended to clarify the time
limitation
    established for submission of debentures in exchange for the timely
    payment of mortgage insurance premiums (MIP). The Mortgagee's
Guide,
    Handbook 4110.2, Chapter 13, paragraph 13-14 provides: "Debentures
    must be received by HUD in Headquarters within five calendar days
    following the due date of the premium regardless of whether it is a
    renewal or initial premium. Any debenture not received by HUD in
    Headquarters within five calendar days will be returned as
unacceptable
    for purchase."

           For the purpose of this procedure, if the fifth day falls on a
      Saturday, Sunday or holiday, HUD will accept such debentures on the
      next business day thereafter. For example, if the fifth calendar
day
    following the due date of the premium is on a Friday, which also
    happens to be a holiday, HUD will accept the debentures, before
close
    of business, the following Monday, which is the next business day.

          For further information, contact John Stahl, Office of Finance
and
      Accounting, Washington, D. C.     20410.   Telephone (201) 755-5154.

                                                 Sincerely,

                                                 Philip D. Winn
                                                 Assistant Secretary for
Housing
                                                 - Federal Housing
Commissioner

                                        5


                         DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                                      WASHINGTON, D.C. 20410
                                         August 4, 1982

OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING - FEDERAL HOUSING COMMISSIONER                        IN REPLY REFER
TO:

                                                          Mortgagee Letter
82-13

        TO:   ALL APPROVED MORTGAGEES

      SUBJECT:      Surplus Escrow Payments for Multifamily Project
Mortgages

              The   purpose of this letter is to bring to the attention of
all
        approved mortgagees the Department's requirements for handling
        surplus escrow payments for multifamily project mortgages.

              HUD Regulations, 24 CFR   207.12, require that the Mortgage
or
      Deed of Trust shall provide for equal monthly payments by the
      mortgagor to the mortgagee which will amortize the principal and
      interest on the loan. The estimated amount of all taxes, water
      rates, special assessments, and fire and hazard insurance
premiums
        are also included in the monthly payments, and placed in escrow
        accounts until needed. The Regulations state that the mortgagee
must
        make provision for adjustments in case the estimated amount for
the
      escrowed items shall prove to be more or less than the actual
amount
      paid by the mortgagor.

           Any excess payments shall normally be handled in accordance
with
      the standard Deed of Trust or Mortgage, which provides that
surplus
      escrow accumulations shall be credited by the mortgagee to
subsequent
      payments of the same nature to be made by the mortgagor. For
      example, a surplus in the tax escrow shall be credited to ensuing
tax
      payments. However, if the mortgagee and mortgagor agree, a large
      surplus can be either paid to other required accruals, or placed
in
      the replacement reserve account or residual receipts account. If
the
      mortgage is in default, a surplus in any of the escrow accounts
shall
      be applied to the balance then due. In addition, if the balance
in a
      particular escrow is not sufficient to cover a payment due from
that
      escrow, a surplus in another escrow account shall be applied to
that
      deficiency. With HUD's approval, the excess monies may be placed
in
      the project account for the general use of the project. In no
case,
      however, shall the excess monies be returned directly to the
      mortgagor for distribution. Project funds can only be
distributed in
      accordance with the terms of the Regulatory Agreement.

             If you have any questions, please contact the Office of
        Multifamily Housing Management, Management Operations Division,
(202)
        755-5866.

                                        Philip Abrams
                                        General Deputy Assistant Secretary
                                          - Deputy Federal Housing
Commissioner

                                    6

                      DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                                   WASHINGTON, D.C. 20410
                                      January 12, 1983

OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING - FEDERAL HOUSING COMMISSIONER

                                                       Mortgagee Letter
83-1

          Letter For:   All Approved Mortgagees

          Subject:   Assignment of Multifamily Mortgages

               Your immediate attention is directed to a growing concern
          relative to the increasing number of multifamily mortgage
          assignment elections being received by the Department of
Housing
          and Urban Development.

             Both lenders and HUD have common financial interests in
        insured projects. High interest rates have the potential for
        creating negative spreads for the lender. At the same time,
        increasing assignments have contributed to Federal Budget
problems
        through substantial outlays from the Insurance Funds. At a time
        when increasing budget deficits are at the forefront of the
        national attention, we urge your cooperation.

              The Department recognizes that there is an incentive to
assign
          low interest rate mortgages as soon as they become eligible for
          insurance benefits. This is of particular concern to us, since
          such elections might be prevented if the mortgagee, mortgagor,
and
          HUD attempt to develop acceptable payment arrangements to cure
the
          financial defaults.

              Because of the problem of rapid assignments, please give
HUD a
          reasonable amount of time to cure the problem before electing
to
          assign a mortgage. In addition, we ask that you notify HUD of a
          delinquency of an insured mortgage immediately after the 15th
day
        of the month in which the payment is due. Please direct the
        notification to the local HUD Area Office and/or Multifamily
        Service Office, Loan Management Branch Chief, and also to the
        Director of Multifamily Management Operations at HUD's
Headquarters
        in Washington and ensure its arrival at those locations by the
20th
        day of the delinquency. Earlier notification will give the
        Department the crucial time needed to cure the default. In
many
        cases, this will also give you and the mortgagor the time
needed to
        plan an acceptable payment agreement.
 When making notification, please provide the following:

      1.    FHA Project Number
      2.    Project Name and Address
      3.    Mortgagor billing Name, address, and phone number
      4.    Outstanding Mortgage Balance
      5.    Interest Rate
      6.    Number of installments past due
      7.    Amount delinquent
      8.    Reason for delinquency

 The address of the Director of Multifamily Operations is:

      The Department of Housing and Urban Development
      Office of Multifamily Housing Management, HMH
      Management Operations Division, HMHM
      Attention: Delinquency Alert
      451 7th Street, S.W.
      Washington, D.C. 20410

 Enclosed is a list of Loan Management Branch Chiefs.

       The 15 day notification period has been discussed with members
of
  the Mortgage Bankers Association of America, (Insured Project
  Committee-Servicing Subcommittee) with favorable response. Some of
the
  large FHA Multifamily lenders have already agreed to the advance
  notification period. Together, we must strive to create a stronger
  economy and a healthier investment climate --- a climate which will
  ensure reasonable regulations for mortgagees and adequate safeguards
for
  the taxpayer's investment. By working together now, we will both
reap
  greater benefits in the future. Your cooperation is appreciated. If
you
  have any questions please contact Patrick McInturff at 202-755-5547.

       This letter has been approved by the Office of Management and
Budget
  and assigned OMB approval No. 2502-0041.

                                        Philip Abrams
                                        Assistant Secretary for Housing
                                          - Federal Housing
Commissioner

Enclosure


Boston Area Office                              Ms. Laurie Langlois
Bulfinch Building
15 New Chardon Street                           (617) 223-4182
Boston, MA 02114
Hartford Area Office             Mr. Robert Donovan
One Hartford Square West
Suite 204                        (203) 244-2317
Hartford, CT 06106

Manchester MF Service Office     Mr. James Zachos
Norris Cotton Federal Bldg.
275 Chestnut St.                 (603) 666-7684
Manchester, NH 03103

Providence MF Service Office     Mr. Christano Neves
Rm. 330-John O. Pastore
Federal Bldg.                    (401) 528-4835
Providence, RI 02903

Buffalo Area Office              Mr. Charles H. Meyer,
Jr.
Statler Bldg., Mezzanine
107 Delaware Avenue              (716) 846-5710
Buffalo, NY 11202

Caribbean Area Office            Mr. Ramon Moreno
Federico Deoptau Federal Bldg.
U.S. Court House, Room 428       (809) 753-4351
Carlos E. Chardon Avenue
Hato Rey, Puerto Rico 00918

Newark Area Office               Mr. Ronald J. Santa
Gateway Bldg. No. 1
Raymond Plaza                    (201) 645-3230
Newark, NJ 07102

New York Area Office             Mr. Donald J. Foy
26 Federal Plaza
New York, NY 10278               (212) 264-4975

Baltimore Area Office            Mr. Kenneth Hannon
Equitable Bldg.
10 N. Calvert St.                (301) 962-2144
Baltimore, MD 21202

Charleston MF Service Office     Acting: Ernest R Marsh
Kanawha Valley Bldg.
Capitol & Lee St.                (304) 347-7064
Charleston, WV 25301

Philadelphia Area Office         Mr. Joseph Mallon
625 Walnut Street
Philadelphia, PA 19106           (215) 597-3409

Pittsburgh Area Office           Mr. Robert G. Speicher
Ft. Pitt Commons
455 Ft. Pitt Blvd.               (412) 644-3431
Pittsburgh, PA 15219

Richmond Area Office             Mr. William Henderson,
Jr.
701 E. Franklin St.
Richmond, VA 23219             (804) 771-2001

Washington D.C. Area Office    Ms. Juanita Burgess
Universal North Bldg.
1875 Connecticut Avenue        (202) 673-5839
Washington, D.C. 20009

Atlanta Area Office            Mr. William E. Beasley
Richard B. Russell Fed. Bldg
75 Spring St., S.W.            (404) 221-4017
Atlanta, CA 30303

Birmingham Area Office         Mr. Claude J. Boone
Daniel Bldg. 15 S. 20th St.
Birmingham, AL 35322           (202) 254-1611

Columbia Area Office           Ms. Arlena Espizito
Strom Thurmond Fed. Bldg.
1835-45 Assembly Street        (803) 765-5826
Columbia, SC 29201

Greensboro Area Office         Ms. Florene E. Mitchell
415 N. Edgeworth Street
Greensboro, NC 27401           (919) 378-5673

Jacksonville Area Office       Mr. Austin D. Hurt
Peninsular Plaza, 661
Riverside Avenue               (904) 791-2953
Jacksonville, FL 32202

Jackson Area Office            Mr. Thomas C. Smith,
Jr.
U.S. Federal Bldg.
100 W. Capital St. Rm. 1016    (601) 960-4719
Jackson, MS 39201

Knoxville Area Office          Mr. William S.
McClister
1 Northshire Bldg.
1111 Northshire Drive          (615) 558-1477
Knoxville, TN 37919

Louisville Area Office         Ms. Imogene Isaacs
539 River City Mall
P.O. Box 1044                  (502) 582-6467
Louisville, KY 40202

Nashville MF Service Office    Mr. Charles T. Barnett
1 Commerce Place Suite 1600
Nashville, TN 37219            (615) 251-5069

Chicago Area Office            Mr. Vernon A. Washington
One North Dearborn
Chicago, IL 60602              (312) 353-9174

Cincinnati MF Service Office   Mr. William Setty
550 Main Street
Cincinnati, OH 45202               (513) 684-2884

Cleveland MF Service Office        Mr. Garreth R. Dowlen
770 Rockwell Avenue
2nd Floor                          (216) 522-4032
Cleveland, OH 44114

Columbus Area Office               Acting: Mr. Ferdinand
Juluke
200 N. High Street
Columbus, OH 43215                 (614) 469-5704

Detroit Area Office                Mr. Gary Levine
McNamara Fed. Bldg.
477 Michigan Avenue                (313) 226-4817
Detroit, MI 48226

Grand Rapids Service Office        Mr. William H. Deboer
2922 Fuller Ave., N.E.
Grand Rapids, MI 49505             (616) 456-2214

Indianapolis Area Office           Mr. Malcolm Stockwell
151 N. Delaware St.
P.O. Box 7047                      (317) 269-2087
Indianapolis, IN 46207

Milwaukee Area Office              Ms. Marcelle Schoeneman
744 N. Fourth Street
Milwaukee, WI 53203                (414) 291-1028

Minneapolis St. Paul Area Office   Mr. Howard Goldman
220 South Second Street
Bridge Place Bldg.                 (612) 349-3095
Minneapolis, MN 55803

Springfield Valuation &            Mr. Robert Walker
Endorsement Station
Lincoln Towers Plaza               (217) 492-4174
524 So. Second Street,
Room 600
Springfield, IL 62701

Albuquerque Service Office         Mr. Allen S. Riddle
625 Truman Street, N.E.
Albuquerque, NM 87110              (505) 766-3249

Dallas Area Office                 Mr. Edwin R. Burton
2001 Bryan Tower
4th Floor                          (214) 767-8394
Dallas, TX 75201

Houston MF Service Office          Mr. R. Earle White
Two Greenway Plaza East
Suite 200                          (713) 226-4352
Houston, TX 77046
Lubbock Service Office          Mr. Harry Stokely, Jr.
Federal Building
1205 Texas Avenue               (806) 762-7275
Lubbock, TX 79408

Little Rock Area Office         Mr. James E. Hicks
One Union North Plaza
Suite 1400                      (501) 378-6148
Little Rock, AR 72201

Oklahoma City Area Office       Mr. James L. Cook
Murrah Federal Building
200 N.W. 5th Street             (405) 231-4582
Oklahoma City, OK 73102

New Orleans Area Office         Mr. Robert J. Villars
1001 Howard Plaza Tower
New Orleans, LA 70113           (504) 589-6635

San Antonio Area Office         Thomas F. Meadows, Jr.
Washington Square Bldg.
800 Dolorosa - P.O. Box 9163    (512) 229-6830
San Antonio, TX 78285

Shreveport Service Office       William C. Bonner, Jr.
50 Fannin Street
New Federal Bldg., 6th Floor    (318) 226-5405
Shreveport, LA 71101

Tulsa Service Office            Mr. James Cooke
State Office Building
440 S. Houston Avenue           (405) 231-4582
Tulsa, OK 74127

Des Moines MF Service Station   Mr. Steven Robins
210 Walnut Street
Room 259                        (515) 284-4770
Des Moines, IA 50309

Kansas City Area Office         Mr. Vern Davis, Jr.
Professional Building
1103 Grand Street               (816) 374-6125
Kansas City, MO 64106

St. Louis Area Office           Mr. George Demetre
270 N. Tucker Blvd.
St. Louis, MO 63101             (314) 425-4777

Omaha Area Office               Mr. George Vogel
Univac Building
7100 West Center Road           (402) 229-9428
Omaha, NE 68106

Denver Regional/Area Office     Mr. Larry C. Sidebottom
Executive Tower Building
1405 Curtis Street              (303) 837-4721
Denver, CO 80202
Honolulu Area Office           Mr. Mike Flores
300 Ala Moana Blvd.
Honolulu, HI 94830             (808) 546-2137

Los Angeles Area Office        Mr. Malcolm Findley
2500 Wilshire Blvd.
Los Angeles, CA 90057          (213) 688-5978

Phoenix Service Office         Mr. George Stensland
Arizona Bank Bldg.
101 N. First Avenue            (602) 261-4497
Suite 1800
Phoenix, AZ 85002

Sacramento MF Service Office   Ms. Elizabeth Downing
545 Downtown Plaza
P.O. Box 1978 - Suite 250      (916) 440-2334
Sacramento, CA 95809

San Francisco Area Office      Acting: William H.
Harrison
One Embarcadero Center
Suite 1600
San Francisco, CA 94111        (415) 556-6781

Anchorage Area Office          Acting: Pat Brown
334 West Fifth Avenue
Anchorage, AK 99501            (907) 271-4175

Portland Area Office           Mr. Albert E. Olson
Cascade Building
520 S.W. Sixth Avenue          (503) 221-2788
Portland, OR 97204

Seattle Area Office            Mr. George M. Mathisen
403 Arcade Plaza Bldg.
1321 Second Avenue             (206) 442-0334
Seattle, WA 98101

Tucson Service Office          Mr. Lawrence H. Peters
33 N. Stone Avenue
Arizona Bank Bldg.             Comm: (602) 792-6779
Suite 1400
Tucson, AZ 85701

Boise Service Office           Mr. Albert E. Olson
419 N. Curtis Road
P.O. Box 32                    Comm: (503) 221-2788
Boise, ID 83705

Portland Area Office           Mr. Albert E. Olson
Cascade Building
520 S.W. Sixth Avenue          Comm: (503) 221-2788
Portland, OR 97204

Seattle Area Office            Mr. George M. Mathisen
403 Arcade Plaza Bldg.
1321 Second Avenue                                 Comm: (206) 442-0334
Seattle, WA 98101

Spokane Service Office                             George M. Mathisen
746 U.S. Courthouse
West 920 Riverside Avenue                          Comm: (206) 442-0334
Spokane, WA 99201


                        DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                                     WASHINGTON, D.C. 20410
                                        March 25, 1983

OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING - FEDERAL HOUSING COMMISSIONER

                                                        Mortgagee Letter
83-8

            TO:   ALL APPROVED MORTGAGEES

            SUBJECT:   Withholding of Interest on HUD Debentures

                  The Tax Equity and Fiscal Requirements Act of 1982
requires
            payers of interest to withhold ten (10) percent of each
interest
            payment as a Federal income tax withholding unless the
recipient
            is eligible for exemption. Recipients of interest on HUD
            debentures are paid directly by the Bureau of Public Debt,
            Treasury Department. Therefore, in accordance with the Act,
the
            Bureau of Public Debt will withhold ten percent of each
debenture
            interest payment unless an exemption certificate is filed
with
            the Bureau.

                  For exemption, Form PD 5064, Certificate of Exemption
From
            Withholding on Interest, must be filed with the Bureau no
later
            than one full month prior to the interest payment date.     The
form
            may be obtained by writing to:

                       (1)   Any Federal Reserve Bank or Branch, or

                       (2)   Bureau of the Public Debt, Department F,
                             Washington, D.C. 20226

                Inquiries relative to withholding of interest on HUD
            debentures should be made via calling the Bureau of Public
Debt's
           public inquiry service, telephone (202) 287-4113.    (This is
not a
           toll-free number.)

                                            Sincerely,

                                            Philip Abrams
                                            Assistant Secretary for
Housing
                                            - Federal Housing
Commissioner


                      DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                                   WASHINGTON, D.C. 20410

OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING - FEDERAL HOUSING COMMISSIONER
                                                      Mortgagee Letter
83-24

     TO:   ALL APPROVED MORTGAGEES

     ATTENTION:   Multifamily Mortgagees

     SUBJECT:   Requirements for Multifamily Insured Projects
                1. Property Insurance Requirements
                2. Increases in Replacement Reserve Deposits
                3. Investment of Replacement Reserves and Residual
Receipts
                4.   Distribution of Form HUD-9807, Request for
Termination
                      of Multifamily Mortgage Insurance

          1. Clarification of Property Insurance Requirements. 24 CFR
     207.260(c) requires that all projects encumbered by FHA insured
     mortgages must carry hazard insurance policies which meet the
     requirements of the Federal Housing Commissioner. Since those
     regulations also make mortgagees responsible for monitoring the
     adequacy of the coverage and for obtaining insurance when
mortgagors
     fail to do so, several mortgage companies have asked the
Department to
     clarify its insurance requirements for multifamily projects. That
     clarification follows.

          Section 207.10 of the Regulations requires that multifamily
     projects carry a fire and extended coverage insurance policy in an
     amount that meets the coinsurance requirements of the insurer and
is
     at least equal to 80 percent of the actual cash value of the
project's
     insurable improvements and equipment. These insurance requirements
     apply as long as the mortgage is insured by HUD and regardless of
the
     unpaid principal balance of the mortgage. To determine the amount
of
     insurance required at project completion, mortgagees must use the
     estimate of insurable value shown on Form HUD-92329, Property
     Insurance Schedule. In later years Form HUD-92329's insurable
value
     figures must be updated to reflect changes in construction costs
that
     have occurred since project completion. After the first year of
     project operation, HUD will consider insurance coverage to be
adequate
     if the insurance coverage met the insurer's coinsurance
requirements
     at the time the policy was issued and:

           (a) the policy is endorsed with an agreed amount clause in
which
              the insurer acknowledges the adequacy of the insurance
              coverage and agrees not to invoke any coinsurance penalty;

           (b) the insurer annually certifies that the insurance coverage
               meets its coinsurance requirements; or

           (c) the mortgagor/the insurance agent/the mortgagee annually
               correctly recomputes the project's insurable value by
applying
              cost factors published in one of the nationally recognized
              building cost indices
              and insurance coverage is increased to 80% (or any higher
              percentage required by the insurer's coinsurance clause)
of the
              revised insurable value.

      If the mortgagor refuses to pay any higher premiums associated
with
required increases in insurance coverage, the mortgagee must pay the
additional premiums and bill the mortgagor for those premiums.

      2. Increases in Monthly Deposits to the Reserve for
Replacements.
All projects subject to the replacement reserve provisions of the
revised
Section 8 New Construction or Substantial Rehabilitation regulations
must
increase their monthly deposits to the replacement reserve annually by
the
percentage amount of the annual adjustment approved for that project.
The
revised regulations apply to all older Section 8 projects whose owners
voluntarily opted to be bound by those regulations and, except as noted
below, all insured and non-insured projects for which Agreements to
Enter
Into Housing Assistance Payments Contracts (AHAPs) were executed on or
after November 5, 1979 for New Construction projects or February 20,
1980
for Substantial Rehabilitation projects. The replacement reserve
requirements of the revised Section 8 regulations do not apply to
previously HUD-owned projects sold pursuant to Section 886 (Subpart C),
partially assisted projects, or Section 202/8 projects.
      While HUD regulations do not require increases in deposits on
other
projects, regulatory agreements on insured and HUD-held projects do
authorize HUD Field staff to approve changes in the amounts of the
monthly
deposits. When processing rental increases, HUD staff will analyze the
adequacy of the deposits and suggest that owners increase the deposits
if
the increases are needed to meet replacement needs of the project.

      Whenever deposits are increased pursuant to either of the two
preceding paragraphs, the Field Office will send the mortgagee a Form
HUD-9250, Reserve for Replacements Authorization. This Form will
specify
the amount and effective date of the new deposit.

      3. Investment of Reserves for Replacements and Residual
Receipts.

            a.   Replacement Reserves. The revised Section 8 regulations
                 require that projects subject to those regulations invest
the
                 Reserve for Replacements. While HUD regulations do not
                 mandate that other projects invest their Replacement
                 Reserves, HUD encourages owners to do so as prudent
                 investment can offset inflationary increases in repair
costs
                 and enhance a project's financial condition. If an owner
                 elects to invest the Replacement Reserve, the Mortgagee's
                 Certificate (Form HUD-92434) provides that the mortgagee
must
                 permit the investment.   Either the mortgagee or the
mortgagor
                 may effect the investment.   Mortgagors subject to the
revised
                 Section 8 regulations must retain any investment earnings
in
                 the Reserve.

            Mortgagors not subject to the revised Section 8 regulations
            must deposit investment earnings in either the project's
            operating account or the Reserve for Replacements; the
choice
            rests with the mortgagor. Investment earnings may not be
            distributed directly to mortgagors without regard to surplus
            cash considerations.

       b.   Residual Receipts.   In the past only projects subject to
Subpart
            F of the revised Section 8 regulations were required to
invest
            Residual Receipts.   While the Regulatory Agreements for
other
            projects give HUD control over the use and investment of
            Residual Receipt funds, in the past HUD has elected to allow
            those mortgagors to choose to invest or not to invest these
              funds. We are now changing our policy for these projects.
              Effective immediately, we are requiring that all projects'
              Residual Receipts be invested and that any earnings on the
              investment be credited to the Residual Receipts account.
              Residual Receipts may be invested only in the accounts or
              securities listed under Paragraph c below. While mortgagors
              relinquished control over Residual Receipts when they signed
the
              project Regulatory Agreement, at the present time HUD will
allow
              the mortgagors to select among the authorized forms of
              investment so long as the mortgagor exercises due care and
              attempts to maximize earnings to the extent consistent with
the
              project's liquidity needs.

        c.    Forms of Investment. Reserves for Replacement and Residual
              Receipts may be invested in Treasury securities, securities
              issued by a a Federal agency or deposits which are insured
by an
              agency of the Federal government. Acceptable forms of
              investments are listed in Paragraphs (1) through (4) below.
              Neither Residual Receipts nor Replacement Reserves may be
              invested in Repurchase Agreements (REPOS). Investments must
be
              established so as to: (1) permit the mortgagee to convert
the
              investment to cash at any time; and (2) provide that the
              investments will at all times be under the control of the
              mortgagee.

              (1) Direct Obligations of the Federal Government Backed by
                  the Full Faith and Credit of the United States. These
                  include U.S. Treasury Bills, Notes and Bonds.

              (2) Obligations of Federal Government Agencies. These
                  include, for example, GNMA Mortgage-Backed Securities,
                  GNMA Participation Bonds and Farm Credit Administration
                  issues.

              (3) Demand and Savings Deposits.   Demand and savings
deposits
                  at commercial banks, mutual savings banks, savings and
                  loan associations and credit unions are permitted,
provided
                  that the entire deposit is insured by the Federal
Deposit
                  Insurance Corporation (FDIC), the National Credit Union
                  Share Insurance Fund (NCUSIF), or the Federal Savings
                  and Loan Insurance Corporation (FSLIC).

                  (4) Insured Money Market Deposit Accounts. Investment in
                      money market accounts is permitted, provided that the
                      account is insured by one of the Federal agencies
                      identified in Subparagraph 3c(3) above.

             d.   Choosing Among Available Forms of Investment.   Except as
                noted below, the mortgagor has the right to determine
which
                of the investments discussed in Paragraph 3c will be used
and
                a mortgagee may not restrict the mortgagor's choice. A
                mortgagor may authorize a lender to select the form of
                investment, if the lender is willing to accept that
                responsibility. If a mortgagor retains the authority to
                choose among authorized forms of investment, the
mortgagee
                may require the mortgagor to provide written directions
as to
                the type of investment desired.   A mortgagee may refuse
to
                honor mortgagor's request for a specific investment only
if:

                (1) the mortgagee determines that the mortgagor's choice
of
                   investment will significantly increase the lender's
cost
                   of administering the reserve, and the mortgagee
                   identifies another investment which offers liquidity,
                   security and yield equal to or better than that
proposed
                   by the mortgagor; or

                (2) the proposed investment does not meet the criteria
                    discussed in Paragraph 3.c. above.

           e.   Mortgagee Fees. The mortgagee may charge a fee for
                administering invested residual receipts or replacement
                reserves if the fee is acceptable to the mortgagor. If
there
                is an identity-of-interest between the mortgagee and
either
                the mortgagor or its management agent, the mortgagor must
                assure that such fees do not exceed the amounts commonly
                charged when there is no identity-of-interest between the
                mortgagee and mortgagor. The mortgagor must disclose any
                such fees in the Replacement Reserve or Residual Receipts
                supporting schedules to the annual financial statement.

     4. Distribution of Form HUD-9807, Request for Termination of
Multifamily Mortgage Insurance. The mortgagee is required to submit
Form
HUD-9807 when the mortgage is prepaid or the mortgagor and mortgagee
agree
to terminate the mortgage insurance. Instructions printed on Form HUD-
9807
direct mortgagees to mail the form only to HUD Headquarters. To
increase
the accuracy of Field Office portfolio listings and address lists, we
are
now asking that mortgages mail all HUD-9807 requests to both HUD
Headquarters
and the HUD Field Office having jurisdiction over the project in
question.
The Field Office's copy should be sent to the attention of the Housing
Division Director.

                                                 Sincerely,

                                              W. Calvert Brand
                                              General Deputy
                                              Assistant Secretary
                       DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                                    WASHINGTON, D.C. 20410

                                       March 27, 1985

OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING - FEDERAL HOUSING COMMISSIONER

                                                         Mortgagee Letter
85-4

       TO:   ALL HUD APPROVED MORTGAGEES

       SUBJECT:   Flood Insurance Requirements

          The Flood Disaster Protection Act of 1973 requires that a
     property endorsed for EM mortgage insurance be covered by National
     Flood Insurance Program (NFIP) flood insurance if the property is
     located in an area of special flood hazard as designated on
community
     maps issued by the Federal Emergency Management Agency (FEMA).
These
     maps are termed "Flood Hazard Boundary Maps" or "Flood Insurance
Rate
     Maps," depending upon the current level of community participation
in
     the NFIP.

            It has come to our attention that approved mortgagees may be
       unaware of: (1) the potential consequences to them if they fail
to
       advise prospective homeowners of mapped flood hazards, or if they
fail
     to require the prescribed NFIP flood insurance coverage; or (2)
whose
     responsibility it is to determine whether a property is within a
flood
     hazard area.

          HUD instructions for property appraisals and the Residential
     Appraisal Report (Form HUD-92800-3) require identification of
whether
     a property is in a FEMA-mapped flood hazard area. This should be
     indicated on the appraisal form by the appraiser who is hired by
the
     mortgagee or by the fee appraiser assigned by HUD, and mortgagee
     submission of a Form HUD 92800-3 with positive indication of a
     property location in a flood hazard area will trigger a commitment
     requirement for flood insurance coverage (Specific Commitment
     Condition 13 on Form HUD-92800-5a). Under the Direct Endorsement
     program, the mortgagee must impose the flood insurance
requirement.
     HUD identification of appraisers technically qualified to perform
     appraisals does not warrant that their determinations will be
complete
     or error free, and mortgagees are responsible for checking
negative
     indications of flood hazard areas.

          Failure to advise prospective homeowners of mapped flood
hazards
     or to require the prescribed NFIP flood insurance coverage can
have
     the following consequences:

            1.   The mortgagee may be surcharged on its mortgage
insurance
                 claim if the default is due to flood damage or
destruction
                 and there is no flood insurance to cover the cost of
repair
                 or replacement.

            2.   The mortgagee may lose its FHA approval.


 3.      The Flood Disaster Protection Act of 1973 may create a standard
         of conduct which, if broken, would give rise under state law to
         an action by a mortgagor against the mortgagee for negligence
         (Hofbauer v. Northwestern National Bank, 700 F. 2d 1197
         (8th Cir. 1983)).

 4.      The property and the mortgagor may become ineligible for
         Federally-Administered Disaster Assistance Loans or Grants.

 For any technical questions, contact D. Earl Jones at (202) 755-6700.

                                   Sincerely,

                                   Shirley McVay Wiseman
                                   General Deputy Assistant Secretary
                                     for Housing-Federal Housing
Commissioner


                      DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                                   WASHINGTON, D.C. 20410
                                      November 8, 1985

OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING - FEDERAL HOUSING COMMISSIONER

                                                       Mortgagee Letter
85-25
       TO:   All Approved Mortgagees

     SUBJECT:    Implementing wire transfers of multifamily claims
payable in
                    cash of $5,000 or more

          The Department of Housing and Urban Development and the
     Department of the Treasury are ready to use electronic funds
transfers
     starting November 4, 1985, to pay multifamily claims payable in
cash.
     If the claim is payable in cash, payments of $5,000 or more will
be
     made through the Treasury Financial Communication System (TFCS).
This
     will improve the efficiency of Federal financial management and
also
     benefit mortgagees.

            The TFCS provides on-line access to the Federal Reserve
       Communications System (FRCS) enabling payments to mortgagees to be
       made to financial institutions that have access to the FRCS. The
       payment can also be made to financial institutions that do not
have
       access to the FRCS through correspondent financial institutions or
       Federal Banks.

             The TFCS payment method will eliminate mail and processing
time
       associated with payment by check. Instead of waiting for a check
       payment to arrive in the mail, payment will be received through
the
       financial institution on the actual payment due date.   This is a
more
       secure and reliable method of making and receiving payment.
       Information about the invoice(s) being paid will still be received
as
       each TFCS payment message, will contain invoice information and
the
       account number at the financial institution.

          In order to make payment by TFCS to mortgagees, the attached
     payment information form will be sent to mortgagees or their
servicers
     with the Multifamily Insurance Benefits Claims Package. The form
will
     also be sent on outstanding cases in which the package has already
     been sent. For the TFCS payment method to he used, the form must
be
     completed and returned as instructed.


       If you have any questions or need additional information
regarding
  this matter, please feel free to contact Eugene Morroni on
  (202) 755-7523.
      Thank you for your cooperation and support of FHA programs.

                                     Sincerely,

                                     Janet Hale
                                     General Deputy Assistant
                                       Secretary For Housing
                                       - Federal Housing Commissioner

 Attachment


                                              OMB Number: 1510-0050
                                              Expiration Date: 9/30/86

                         Payment Information Form
                Treasury Financial Communications System

     The information requested on this form concerning your financial
institution should be available through your company's Treasurer or
financial institution.

     If your financial institution has access to the Federal Reserve
Communications System, please only complete items 1-9 and 14. If your
financial institution does not have access to the Federal Reserve
Communications System, please complete all items except item 7.

1. Name of Company:
____________________________________________________

2. Address:
____________________________________________________

____________________________________________________

____________________________________________________

3. Contact Person:
____________________________________________________

4. Phone Number:      Area Code
___________________________________________

5.  Name of Financial
      Institution:
____________________________________________________

6.  Address of
    Financial
      Institution:
____________________________________________________

____________________________________________________

____________________________________________________
7.   Financial institution's 9-digit ABA identifying number for routing
     transfer of funds: _ _ _ _ _ _ _ _ _ (Complete only if your
     financial institution has access to the Federal Reserve
     Communications System).

8. Telegraphic abbreviation of financial institution:
__________________

9.   Account number at your financial institution to be credited with
     the funds: _______________________

10. Name of the correspondent financial institution your financial
    institution receives electronic funds transfer messages through, if
    it does not have access to the Federal Reserve Communications
    System: ___________________________


11. Address of Correspondent
       Financial Institution:
_____________________________________________

_____________________________________________

_____________________________________________

12. Correspondent financial institution 9-digit ABA identifying number
      for routing transfer of funds: _ _ _ _ _ _ _ _ _.

13. Telegraphic abbreviation of correspondent financial institution:
    _____________________________________________

14. Signature and title of person completing this form:

    _________________________    ______________________
_________________
        Signature                Title                      Date

        Comments:
_________________________________________________________

_________________________________________________________

_________________________________________________________

_________________________________________________________

Mail to:


                     DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                                  WASHINGTON, D.C. 20410

                                     March 24, 1986

OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING - FEDERAL HOUSING COMMISSIONER
                                                       Mortgagee Letter
86-8

     TO:   ALL HUD APPROVED MORTGAGEES

     SUBJECT:   Insurance Requirements - Multifamily Housing Projects

         Insurance premiums, including those for fire and hazard
insurance
    required by HUD, are increasing at an alarming rate due to changes
in
    the economics of the insurance industry. These changes are
resulting
    in higher than normal premium increases and have created a problem
in
    securing insurance for Multifamily housing Projects insured under
all
    Sections of the National Housing Act, including co-insured
projects.
    The rate increases are so high that, in several instances,
insurance
    cannot be purchased even through the FAIR plans administered by the
    States.

         HUD Regulations (24 CFR 207.10) require that the mortgage
include
    a covenant binding the mortgagor to carry a standard insurance
policy
    or policies against fire and other hazards in an amount that meets
the
    coinsurance requirements of the insurer and is at least equal to 80
    percent of the actual cash value of the insurable improvements and
    equipment. These insurance requirements apply as long as the
mortgage
    is insured by HUD, and regardless of the unpaid principal balance
of
    the mortgage. Mortgagee Letter 83-24, dated October 25, 1983, sets
    forth the method to determine the correct amount of insurance.
That
    letter (and Section 207.260 of the Regulations) also requires all
    insured mortgagees to pay insurance premiums to keep such policies
in
    force and bill project owners for premiums due if mortgagors refuse
to
    pay higher premiums for increases in insurance coverage.

          To address the problem cited above and ensure that mortgagees
     continue to meet HUD's requirements for fire and hazard insurance,
we
     have advised our field offices to approve rent increases sufficient
to
     cover the increased cost of insurance premiums.

         Additionally, the Field Offices were directed to increase the
    Reserve Fund for Replacements deposits when lenders agree to
increase
    deductibles. When Reserve Fund for Replacements deposits are
increased,
    Regulatory Agreements will be amended to reflect the change.
However,
    there may be some instances where other measures need to be taken
by
    the mortgagee. These include (1) making advances to pay premiums
until
    rents are increased sufficiently, and billing the owner for the
    advances; (2) establishing reasonable deductible amounts; (3)
setting
    aside a portion of the Reserve Fund for Replacements, or
transferring a
    portion of the residual receipts, if any, to the Reserve Fund for
    Replacements account as a "reserve" for deductibles; and (4)
insuring
    quick response to the Field Office's
    authorization to use Reserve Funds for Replacement Funds to pay
premiums
    where the project owners and HUD have amended Regulatory Agreements
to
    allow HUD to authorize mortgagees to automatically apply sums in
the
    Reserve Fund for Replacements Account to payments due. If a part
of the
    Reserve Fund for Replacements Account is set aside in a "reserve"
for
    deductibles, the funds should be held in cash or should be invested
only in
    a manner that it can be converted to cash with no penalty to
project owners
    and in accordance with requirements otherwise applicable to the
investment
    of Reserve for Replacements Funds.

        HUD Regulations (24 CFR 207.260 (d)(3)) require all insured
mortgagees
    to notify the Commissioner within 30 days of the cancellation of
the
    insurance or of the refusal of the insurance company to renew the
    insurance. That Regulation also requires the mortgagee to notify
HUD that
    diligent efforts to obtain coverage against fire and other hazards
at
    reasonably competitive rates were unsuccessful and that efforts
will be
    continued to obtain such coverage at competitive rates. Failure to
notify
    the Commissioner may result in a reduction of a mortgage insurance
claim
    should the property be damaged at the time of assignment. The
notification
    letter and a copy of the notice of denial or refusal to insure from
the
    insurance company or the State Insurance Commissioner should be
sent to the
      Director, Office of Multifamily Housing Management, 451 7th Street,
SW,
    Washington, DC 20410-8000. The Office of Multifamily Housing
Management
    will acknowledge receipt of this letter and will notify the
applicable
    Field Office. The notification must be accompanied by Notices of
Denial or
    Refusal to Insure issued by the insurance companies contacted. If
a claim
    for mortgage insurance benefits is made while the project is
uninsured, a
    copy of this acknowledged notice must be submitted with the
election to
    assign. If insurance coverage is subsequently obtained, notice
shall be
    given to HUD at the above address.

        Experience has shown that increases in insurance rates are
cyclical
    and that eventually a more competitive market will return. In the
    meantime, we urge your cooperation in dealing with the present
situation,
    especially by notifying project owners when you find potentially
hazardous
    situations, such as:

      (a)   Stair or elevator blockages.
      (b)   Inoperative or blocked entrance or exit doors.
      (c)   Fire extinguishers in inoperable condition
            or missing.
      (d)   Poorly maintained heating or cooling systems.
      (e)   Inadequate electrical systems.
      (f)   Flammable liquids stored on site or near sources of
            combustion.
      (g)   Improperly marked electrical or water systems.
      (h)   Wet floors near electrical boxes or connections.
      (i)   Dirty laundry rooms.
      (j)   Improper insulation of water/steam pipes.
      (k)   Lack of sprinkler systems, standpipes, or fireproofing
            in boiler rooms or near other sources of heat.


For any technical questions, contact James J. Tahash at (202-426-3944).

                             Sincerely yours,

                             Silvio J. DeBartolomeis
                             Acting General Deputy Assistant Secretary
                             for Housing-Deputy Federal Housing
Commissioner


                      DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                                   WASHINGTON, D.C. 20410

                                          SEP 18, 1986
OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING - FEDERAL HOUSING COMMISSIONER

                                                     Mortgagee Letter
#86-18

        TO:   ALL APPROVED MORTGAGEES AND MULTIFAMILY COINSURING LENDERS

        SUBJECT:   Single Family and Multifamily Production - Guidelines
                    Regarding Lapses of Insurance Authority and Credit Cap
                    Limits

            A number of lapses have occurred in the Department's
statutory
      authority to insure mortgages. In addition, on two occasions the
      Department determined that the FHA credit limitation had been
      reached. HUD must assure uniformity in the handling of insurance
      applications when one or both of these events occur. To this
end,
      the following procedures will be utilized:

                                    Single Family Programs

        A.    Expiration of Insurance Authority

              1.   Effective start of business the day on which insurance
                   authority expires, no conditional commitments may be
                   issued or reissued and expired commitments may not be
                   reopened and extended.

              2.   Firm commitment's may be issued pursuant to
outstanding
                   conditional commitments. Firm commitments may not be
                   issued pursuant to outstanding Certificates of
Reasonable
                   Value (CRVs) issued by VA.

              3.   HUD may continue to amend outstanding conditional or
firm
                   commitments.

              4.   HUD may continue to endorse mortgages and issue
insurance
                   certificates, provided a firm commitment is
outstanding.
                   (Firm commitments may only be issued pursuant to
                   outstanding conditional commitments.)

              5.   HUD will continue to issue cases numbers/appraisers'
names
                   and process single family applications up to
conditional
                   commitment, but the commitments will not be issued.

              6.   With regard to Direct Endorsement and Coinsurance
cases,
                   HUD will endorse for insurance those mortgages closed
                   where the appraisal was reviewed and signed by the
Direct
                   Endorsement or Coinsurance Underwriter prior to the
date
                   on which insurance authority expired. (HUD views the
                   signing of the appraisal by the Direct Endorsement
                   or Coinsurance Underwriter as the equivalent of the
issuance of a
                   conditional commitment for insurance authority
purposes).   For
                 mortgages closed where the appraisal was signed by the
                 underwriter on or after the date the insurance
authority expired,
                 HUD does not have the statutory authority to endorse
the case for
                 insurance until the insuring authority is extended.
(Back dating
                 the appraisal is prohibited and would result in an
immediate
                 Mortgagee Review Board action against the mortgagee
involved and
                 administrative action against the underwriter). For
mortgages in
                 the pre-closing status under Direct Endorsement, Firm
Commitments
                 cannot be issued after the insurance authority has
expired.

B.     Credit Cap Limitation Reached/Insurance Authority Expired

     It must be noted that when the Department issues a case number
under
     the single family programs, that case must be counted against the
     credit limitation. Consequently, when the credit limitation is
     reached, the Department cannot continue to issue case numbers and
     appraisers' names because those appraisals would place the
Department
     in a position of having exceeded the credit limitation.
Therefore,
     when the insurance authority has expired and the credit limitation
is
     reached, the Department will, in addition to the procedures
outlined
     in A, cease issuing case numbers and appraisers' names under the
     single family programs. When the credit limitation is raised by
the
     Congress, the Department will resume this process.

C.     Credit Cap Limitation Reached/Insurance Authority not Expired

     When this situation occurs, the Department has the statutory
authority
     to continue to process cases where a case number and appraisers
name
     has been assigned. However, because the issuance of a case number
and
     an appraisers name results in a case being counted against the
credit
     limitation, HUD will cease issuing case numbers and appraisers'
names
     effective upon notification, that the credit limitation is
reached.

                           Multifamily Programs

     The following procedures apply whenever a lapse in statutory
insuring
authority occurs (regardless of whether the credit cap has been
reached) or
the statutory credit cap is reached (regardless of whether statutory
insuring authority has expired):


A.    Full Insurance

     1.    Effective start of business the day insurance authority
expires
           or upon notification that the Credit cap has been reached:
(a)
           new firm commitments may not be issued; (b) expired firm
           commitments may not be reopened; and (c) outstanding firm
           commitments may not be amended to increase the interest rate
or
           the mortgage amount.

      2.   HUD will continue to extend outstanding SAMA letters and
           conditional and firm commitments.

      3.   HUD will continue to issue new, amend outstanding and reopen
           expired SAMA letters and conditional commitments, but the
           following language must be added to such letters or
commitments:
           "This SAMA, letter (or conditional commitment) is further
           conditioned upon the extension by Congress of the
Secretary's
           authority to insure under this section of the National
Housing
           Act and/or an increase by Congress in HUD's statutory credit
           cap."

      4.   HUD will continue to conduct initial and final closings on
           projects that have outstanding firm commitments issued
before
           insurance authority lapsed or the credit cap was reached.

B.    Coinsurance

     1.    For all multifamily coinsurance except as specified in 2.
below,
           effective start of business the day insurance authority
expires
           or upon notification that the credit cap has been reached:
            a.   new firm commitments may not be issued;

            b.   expired firm commitments may not be reopened;

            C.   outstanding firm commitments may not be amended to
increase
                 the interest rate or the mortgage amount.

       2.   For 223(f) coinsurance involving assistance under section 17
of
            the U.S. Housing Act of 1937 (i.e., the Housing Development
            Grant and Rental Rehabilitation programs), the limitations
in
            la., b.   and c. above apply effective start of business the
day
            after insurance authority expires or upon notification that
the
            credit cap has been reached.


       3.   Coinsuring lenders may continue to extend outstanding SAMA
            letters and conditional and firm commitments.

      4.    Coinsuring lenders may issue new, amend outstanding and
reopen
           expired SAMA letters and conditional commitments, but the
           following language must be added to such commitments: "This
           SAMA letter (or conditional commitment) is further
conditioned
           upon the extension by Congress of the Secretary's authority
to
           coinsure under section 244 of the National Housing Act and
to
           insure under either section 207 of the National Housing Act
           pursuant to section 223(f) or section 221 of the National
           Housing act, whichever is relevant; and/or upon an increase
by
           Congress of HUD's statutory credit cap."

       5.   Coinsuring lenders may continue closing project mortgages
that
            had firm commitments issued before insurance authority
lapsed or
            the credit cap was reached, and present them for endorsement
to
            the HUD field office with jurisdiction.

      If you have a question(s), please contact the appropriate HUD
Central
Office staff person(s) listed below:

       1.   Morris Carter, (202) 426-7212, concerning single family
            insurance;

       2.   April LeClair, (202) 755-6223, concerning multifamily full
            insurance;
     3.     Vaughn Sanders, (202) 426-7113, concerning multifamily
            coinsurance.

                                          Very sincerely yours,

                                          James C. Nistler
                                          Acting General Deputy
                                            Assistant Secretary

     U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                              WASHINGTON, D.C. 20410-8000
                                  February 20, 1987

OFFICE OF THE ASSISTANT SECRETARY FOR                 Mortgagee Letter
87-9
HOUSING-FEDERAL HOUSING COMMISSIONER

     TO:    All Approved Mortgagees

     SUBJECT:    Mortgage Prepayment Provisions for
                 HUD-Insured and Coinsured Multifamily Projects

          This Mortgagee Letter supersedes Mortgagee Letter 87-4, *
     dated January 12, 1987, in its entirety. (The format of this
     letter is the same as that of Mortgagee Letter 87-4; note,
     however, that substantive or clarifying changes have been made to
     the following paragraph and Sections I-A(2), I-C(1), II-A and
     II-B.)

           This letter clarifies HUD's position with respect to the
      inclusion of provisions prohibiting partial or full prepayments
      ("lock-outs") and prepayment penalties in fully-insured and
      coinsured project mortgages. The policies set forth below apply
      to all project mortgages endorsed for full insurance under
Section
      207, 213, 2203, 221(d)(3) or (d)(4), 223(f), 231, 232, 241 or 242
      of the National Housing Act, or endorsed for coinsurance under
      Section 221(d) or 223(f) of the National Housing Act on or after
      the date of this letter, except those mortgages which are funded
      with the proceeds of State or local bonds sold prior to
      January 12, 1987.

       I.   Basic Policy

            A.   Mortgages funded with the proceeds of tax-exempt or
                 taxable bonds issued by State or local governmental
                 bodies may include the following, so long as the
                 conditions cited in Section II below are met:

                 (1)   a lock-out provision with a maximum term of ten
                       years plus the construction period stated in the
                       construction contract, if any; and

                 (2)   a penalty provision applicable to prepayments made
                       after the lock-out period, provided the penalty:

                       --   would not exceed five percent during the first
                             year following the lock-out period,

                        --   would decline on a graduated basis (to the
                             extent practicable, the decline in the penalty
                             percentage should be the same each year), and

    * Note:    Mortgagee Letter 87-4 was not fully distributed.


                                                                          2

                   --   would be no higher than one percent by the end
                        of the fifth year following the lock-out
                        period.

        B.   Mortgages funded with the proceeds of GNMA mortgage-backed
             securities or other bond obligations (as defined
             below) may include the following, so long as the
             conditions cited in Section II below are met:

             (1)   a lock-out provision with a maximum term of ten
                   years plus the construction period stated in the
                   construction contract, if any; or

             (2)   a prepayment penalty that would be no more than one
                   percent at the end of the tenth year following the
                   construction period stated in the construction
                   contract (if the initial penalty is three percent
                   or less and the penalty meets the other limits
                   enumerated in paragraph C(2) below, the conditions
                   of Section II need not be met); or

             (3)   a combination lock-out/penalty provision with a
                   lock-out period of less than ten years and a
                   penalty that would be no more than one percent at
                   the end of the tenth year following the
                   construction period stated in the construction
                   contract.

NOTE:   For purposes of this Category B, "other bond obligation"
        refers to any agreement under which the insured mortgagee
        has obtained the mortgage funds from third party investors
        and has agreed in writing to repay such investors at a
        stated interest rate and in accordance with a fixed
        repayment schedule.

        C.   All other mortgages:

             (1)   may not include any lock-out provisions other than
                   prepayment prohibitions required by HUD regulations
                   (e.g., 24 CFR, Section 207.32a(e)(2), 231.12(a), or
                   255.503(i)); but

             (2)   except for Section 241 mortgages of $200,000 or
                   less, may include a prepayment penalty provision,
                   so long as the penalty:
               --    would not apply to any prepayments which, in
                     any calendar year, do not exceed 15 percent of
                     the original mortgage amount,

               --    would not exceed three percent during the first
                     year of the mortgage term unless the conditions
                     cited in Section II below are met, in which
                     case, the initial penalty could be set as high
                     as ten percent,

               --   would decline on a graduated basis (to the
                    extent practicable, the decline in the penalty
                    percentage should be the same each year), and

               --   would be no higher than one percent by the end
                    of the tenth year following the construction
                    period stated in the construction contract.

II. Conditions for Inclusion of Lock-outs and/or Penalties

     We will allow lock-outs (Category A or B mortgages) or
prepayment penalties that initially exceed three percent (Category
A, B, or C mortgages) only when the conditions noted below are
met.

     A. For both full insurance and coinsurance cases, the
     following language, allowing HUD to override the lock-out
     and/or prepayment penalty provision in the event of a
     default in order to facilitate a refinancing or partial
     prepayment of the mortgage and avoid an insurance claim,
     must be included in the mortgage note:

         Notwithstanding any prepayment prohibition
         imposed and/or penalty required by this
         Note with respect to prepayments made prior
         to ___________, 19 __, enter first date on which
         prepayments may be made with a penalty of one
         percent or less the indebtedness may
         be prepaid in part or in full without the
         consent of the mortgagee and without prepayment
         penalty if HUD determines that prepayment will
         avoid a mortgage insurance claim and is therefore in
         the best interest of the Federal Government.

         HUD would consider exercising an override of a
    mortgagee's prepayment lock-out and/or penalty provision only
    if:


         (1)   the project mortgagor has defaulted and HUD has
               received notice of such default, as required by
               24 CFR Section 207.256 (full insurance cases) or
               Section 251-810 or 255.808 (coinsurance cases);

         (2)   HUD determines that the project has been
               experiencing a net income deficiency, which has not
               been caused solely by management inadequacy or lack
          of owner interest, and which is   of such a magnitude
          that the mortgagor is currently   unable to make
          required debt service payments,   pay all project
          operating expenses and fund all   required HUD
          reserves;

   (3)    HUD finds there is a reasonable likelihood that the
          mortgagor can arrange to refinance the defaulted
          loan at a lower interest rate or otherwise reduce
          the debt service payments through partial
          prepayment; and

   (4)    HUD determines that refinancing the defaulted loan
          at a lower rate or partial prepayment is necessary
          to restore the project to a financially viable
          condition and to avoid an insurance claim.

B. For full insurance cases only, the mortgagee must
certify at initial endorsement (final endorsement, in
insurance upon completion cases) that, in the event of a
default during the term of the prepayment lock-out and/or
penalty (i.e., prior to the date on which prepayments may be
made with a penalty of one percent or less), it will:

    (1)   request a three-month extension of the deadline
          prescribed by 24 CFR Section 207.258 for filing a
          notice of its intention to file an insurance claim
          and its election to assign the mortgage;

    (2)   if HUD grants the requested (or a shorter)
          extension of the notice filing deadline, assist the
          mortgagor in arranging a refinancing to cure the
          default and avert an insurance claim;


    (3)   report to HUD at least monthly on any progress in
          arranging a refinancing;

    (4)   otherwise cooperate with HUD in taking reasonable
          steps in accordance with prudent business practices
          to avoid an insurance claim; and

    (5)   require any successors or assigns to certify in
          writing that they agree to be bound by these
          conditions for the remainder of the term of the
          prepayment lock-out and/or penalty.

     The above certification must be incorporated by
reference into the Mortgagee's Certificate.

     In the event of a default, HUD would determine whether
to grant the three-month (or shorter) extension of the
election notice filing deadline based on its analysis of the
project's financial condition and its assessment of the
feasibility of arranging a successful refinancing. No
further extension of the election notice filing deadline
would be considered by HUD, unless an additional extension
       were specifically requested by the mortgagee.

III.   For Further Information

     Questions concerning this letter should be directed to the
Insurance Division, (202)755-6223, or the Coinsurance Division,
(202)426-7113, of the Office of Insured Multifamily Housing
Development.

                               Sincerely yours,

                               Thomas T. Demery
                               Assistant Secretary


                  U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                             WASHINGTON, D.C. 20410-8000

                                     April 23,1987

OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING-FEDERAL HOUSING COMMISSIONER

                                                     MORTGAGEE LETTER 87-
14

       TO:   ALL APPROVED MULTIFAMILY MORTGAGEES

       SUBJECT:   Operational Jurisdiction for Multifamily Projects

          This listing of HUD Regional and Field Offices and FHA
project
     identification numbers describes, in a general way, the
geographical
     responsibilities for project servicing within the basic
Departmental
     structure by summarizing operational jurisdiction for multifamily
     housing functions performed by each field office. While the FHA
     prefix associates projects with field offices, some of our field
     offices do not administer multifamily housing programs. In
addition,
     projects with identical FHA prefixes are not all serviced by the
same
     offices because of the split geographical distribution of
servicing
     workload.

          The proper association of a project with its servicing office
     is particularly important for your timely notification of mortgage
     delinquency to the Department. Therefore, we have prepared the
     attached listing which locates the field offices within their
     respective regional offices and highlights which offices have
split
     geographical jurisdiction to provide an up-to-date description to
     multifamily mortgagees, lenders, and servicers when processing
     Hud-insured multifamily mortgages.
           I hope the listing proves to he beneficial to all concerned.

                                           Sincerely,

                                           Thomas T. Demery
                                           Assistant Secretary for
Housing
                                             - Federal Housing
Commissioner

    Attachment


                       REGIONAL AND FIELD OFFICES OF
             THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
_______________________________________________________________________
____
PROJECT       FIELD          REGIONAL
NUMBER        OFFICE         OFFICE              *OPERATIONAL
JURISDICTION
CODE          NAME           NUMBER               FOR MULTIFAMILY
PROJECTS
_______________________________________________________________________
____

000   - Washington, DC         03       All multifamily housing
functions
                                        are performed for all projects
                                        including those located in the
                                        following counties and
independent
                                        cities listed below:

                                        Virginia:    Alexandria Loudoun
                                                     Arlington
                                                     Manassas    Fairfax
                                                     Manassas Park
                                                     Falls Church
                                                     Prince William

                                        Maryland:    Montgomery
                                                     Prince Georges

012   - New York, NY           02       All multifamily housing
functions
                                        are performed for the following
                                        counties:

                                          Bronx         Kings
Nassau
                                          New York      Westchester
                                          Queens        Suffolk
Richmond
                                          Rockland

013   - Albany, NY             02       The New York, NY Office
performs
                                    all multifamily housing
functions
                                    in Albany for the following
                                    counties:

                                     Sullivan     Orange
Dutchess
                                     Putnam       Ulster

                                    Buffalo, NY Office serves all
other
                                    counties within Albany, NY

014   - Buffalo, NY            02   All multifamily housing
functions
                                    are performed for the following
                                    counties:

                                     Allegany   Cataraugus
Chautauqua
                                     Chemung    Erie
                                     Genesee    Livingston    Monroe
                                     Niagara    Ontario
                                     Orleans    Schuyler      Seneca
                                     Steuben    Wayne
                                     Wyoming    Yates

016     -   Providence, RI     01
017     -   Hartford, CT       01

022   - Bangor, ME             01   All multifamily housing
functions
                                    are performed by the
Manchester,
                                    NH Office

023     -   Boston, MA         01
024     -   Manchester, NH     01

026   - Burlington, VT         01   All multifamily housing
functions
                                    are performed by the
Manchester,
                                    NH Office

031     -   Newark, NJ         02

032   - Wilmington, DE         03   All multifamily housing
functions
                                    are performed by the
Philadelphia,
                                    PA Office

033     -   Pittsburgh, PA     03
034     -   Philadelphia, PA   03
* When other than the field office listed has operational
jurisdiction.


035   -   Camden, NJ          02       All multifamily housing
functions
                                       are performed by the Newark,
                                       NJ Office

042   -   Cleveland, OH       05
043   -   Columbus, OH        05
044   -   Detroit, MI         05
045   -   Charleston, WV      03
046   -   Cincinnati, OH      05

047   -   Grand Rapids, MI    05
048   -   Detroit, MI         05

051   -   Richmond, VA        03       All multifamily housing
functions
                                       for Virginia are performed
except
                                       for those areas listed for
                                       Washington, DC Office

052   -   Baltimore, MD       03       All multifamily housing
functions
                                       for Maryland are performed
except
                                       for those areas listed for
                                       Washington, DC Office

053   -   Greensboro, NC      04
054   -   Columbia, SC        04
056   -   San Juan, PR        02

059   -   Shreveport, LA      06       All multifamily housing
functions
                                       are performed by the New
Orleans
                                       Office

061   -   Atlanta, GA         04
062   -   Birmingham, AL      04
063   -   Jacksonville, FL    04
064   -   New Orleans, LA     06
065   -   Jackson, MS         04

066   -   Coral Gables, FL    04       All multifamily housing
functions
                                       are performed by the
Jacksonville,
                                       FL Office

067   -   Tampa, FL           04       All multifamily housing
functions
                                       are performed by the
Jacksonville,
                                       FL Office

071   -   Chicago, IL         05

072   -   Springfield, IL     05       All multifamily housing
functions
                                       are performed by the Chicago,
                                       IL Office

073   -   Indianapolis, IN    05
074   -   Des Moines, IA      07
075   -   Milwaukee, WI       05

081   -   Memphis, TN         04       All multifamily housing
functions
                                       are performed by the Nashville,
                                       TN Office

082   -   Little Rock, AR     06
083   -   Louisville, KY      04
084   -   Kansas City, KS     07
085   -   St. Louis, MO       07

* When other than the field office listed has operational
jurisdiction.
086   - Nashville, TN         04
087   - Knoxville, TN         04

091   - Sioux Falls, SD       08       All multifamily housing
functions
                                       are performed by the Denver,
                                       CO Office

092   -   Minneapolis, MN     05

093   - Helena, MT            08       All multifamily housing
functions
                                       are performed by the Denver,
                                       CO Office

094   - Fargo, ND             08       All multifamily housing
functions
                                       are performed by the Denver,
                                       CO Office

101   -   Denver, CO          08

102   - Topeka, KS            07       All multifamily housing
functions
                                       are performed
                                       by the Kansas City, KS Office

103   -   Omaha, NE           07
105   - Salt Lake City, UT      08     All multifamily housing
functions
                                       are performed by the Denver,
                                       CO Office

109   - Casper, WY              08     All multifamily housing
functions
                                       are performed by the Denver,
                                       CO Office

112   - Dallas, TX              06     All multifamily housing
functions
                                       are performed by the Ft. Worth,
                                       TX Office except for the 112
                                       projects located in Collins,
                                       Dallas, and Rockwall counties.

113     -   Fort Worth, TX      06
114     -   Houston, TX         06
115     -   San Antonio, TX     06

116   - Albuquerque, NM         06     All multifamily housing
functions
                                       are performed by the Ft. Worth,
                                       TX Office

117     -   Oklahoma City, OK   06

118   - Tulsa, OK               06     All multifamily housing
functions
                                       are performed by the Oklahoma
City,
                                       OK Office

121   - San Francisco, CA       09     All multifamily housing
functions
                                       are performed for the counties
                                       below:

                                         Alameda            Contra Costa
                                         Del Norte          Fresno
                                         Humboldt           Kings
                                         Lake               Madera
                                         Marin              Mariposa
                                         Mendocino          Merced
                                         Monterey           Napa
                                         San Benito         Solano
                                         San Francisco      Santa Clara
                                         Santa Cruz         Sonoma
                                         San Mateo          Stanislaus
                                         Tulare

* When other than the field office listed has operational
jurisdiction.

122     -   Los Angeles, CA     09
123     -   Phoenix, AZ         09
124   - Boise, ID          10   All multifamily housing
functions
                                are performed by the Portland,
                                OR Office

125   - Las Vegas, NV      09   All multifamily housing
functions
                                are performed for all 125
projects
                                in Nevada

126   - Portland, OR       10   All multifamily housing
functions
                                are performed for all projects
                                including the counties located
                                in the State of Washington
listed
                                below:

                                         Clark
                                         Klickitat
                                         Skamania

127   -    Seattle, WA     10

129   - San Diego, CA      09   All multifamily housing
functions
                                are performed for all 129, 122,
                                and 143 projects located in
                                Imperial, San Diego and Orange
                                Counties

130   -    Anchorage, AK   10
131   -    Houston, TX     06

133   - Lubbock, TX        06   All multifamily housing
functions
                                are performed by the Ft. Worth,
                                TX Office

136   - Sacramento, CA     09   All multifamily housing
functions
                                are performed for all projects
                                located in the counties listed
                                below:

                                   Alpine      Modoc
Siskiyou
                                   Amador      Nevada
Sutter
                                   Butte       Placer
Tehama
                                   Calaveras   Plumas
Trinity
                                   Colusa      Sacramento
Tuolomne
                                                El Dorado   San Joaquin Yolo
                                                Glenn       Shasta      Yuba
                                                Lassen      Sierra

139    -    Phoenix, AZ           09
140    -    Honolulu, HI          09
143    -    Los Angeles, CA       09

171   - Spokane, WA               10         All multifamily housing
functions
                                             are performed by the Seattle,
                                             WA Office

176    -    Anchorage, AK         10

* When other than the field office listed has operational
jurisdiction.


U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                               WASHINGTON, D.C. 20410-8000

                                  July 28, 1987

OFFICE OF THE ASSISTANT SECRETARY FOR                    Mortgagee Letter
87-22
HOUSING-FEDERAL HOUSING COMMISSIONER

      TO:   ALL APPROVED MORTGAGEES

      SUBJECT:    Use of Project Reserve/Residual Receipt Accounts to Cure
A
                     Potential Mortgage Default

         Preserving the FHA Insurance fund is one of the prime
objectives
    of this Department. In 1984, in order to prevent needless Claims
on
    the insurance fund, HUD proposed that owners of multifamily
projects
    with HUD-insured loans effect an amendment to the Regulatory
Agreement
    to give HUD pre-authorization to use funds in a project's reserve
for
    replacement to cure a delinquent mortgage payment.

            Consistent with this policy of preventing avoidable claims,
the
      Department hereby establishes the following new procedures:

            1.   Reserve for Replacements.   Under the Regulatory Agreement,
the
             mortgagor, with HUD's approval, may direct the
disbursement of
             reserve funds for allowable purposes. In cases where the
             mortgagor and HUD have executed the Regulatory Agreement
                amendment referred to above, mortgagees shall accept
telephone
                approval from the HUD Field Offices to use reserve funds
to
                cure a default. (HUD Field Office staff have records
                indicating which mortgagors have executed the amendment.)
HUD
                will promptly confirm the telephone approval in writing.

           2.   Residual Receipts.   The Regulatory Agreement further
provides
                that the residual receipts fund shall be under the control
of
                the Commissioner, and may be used for "such purposes as he
may
                determine."    Consistent with the Department's new policy,
the
                following new procedure is established concerning use of
                residual receipts. In cases where the mortgagee has not
                received payment from the mortgagor by the second to the
last
                business day of the month in which it is due, the
mortgagee is
                hereby directed to automatically transfer funds from the
                residual receipts account (adhere funds are available) to
cure
                the default. Where a mortgagee has taken this action, it
                should immediately inform the local HUD Office of its
action.

           3.   Notice to Mortgagors. Pending the issuance of formal
                regulations to that effect, mortgagees are requested to
send a
                copy of the Delinquency Alert prescribed by Mortgagee
Letter
                83-1, dated January 12, 1983, to the mortgagor, or his
agent,
                in order to ensure that the mortgagor is aware that the
                mortgage is in default. This notification will prevent
                avoidable claims in
                cases where the mortgagor has sufficient funds in the
project
                account to make the mortgage payment, but payment in the
proper
                amount has not been received due to being lost in the mail
or
                other error.

     All of these measures can materially assist in reducing the number
of
avoidable insurance claims where the problem which precipitated the
default can be cured in a relatively short time. The Department
appreciates your assistance in this matter.

     If you have any questions concerning this letter, please contact
the Office of Multifamily Housing Management, Planning and Procedures
Division, at (202) 426-3944.
                                           Sincerely yours,

                                           Thomas T. Demery
                                           Assistant Secretary


                         U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                                    WASHINGTON, D.C. 20410-8000

                                       February 9,1988


OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING-FEDERAL HOUSING COMMISSIONER

                                                          Mortgagee Letter
88-3

     TO:   ALL APPROVED MORTGAGEES

     SUBJECT:    Prepayment of a HUD-Insured Mortgage by an Owner of
                  Low-Income Housing

        Section 221 of the Housing and Community Development Act of
1987,
    which was signed into law on February 5, 1988, prohibits an owner
of
    "eligible low-income housing" from prepaying, and prohibits a
mortgagee
    from accepting prepayment of, a mortgage on such housing except in
    accordance with a plan of action approved by the Secretary of
Housing
    and Urban Development. HUD is currently drafting regulations which
    will establish standards for the approval of such plans of action.
    Since Section 221 is now in effect, pending the issuance of HUD's
    regulations, mortgagees should not accept a prepayment from an
owner of
    eligible low-income housing. The term "eligible low-income
housing"
    includes housing financed by a mortgage:

           (a)   that is :

                 (i)    insured under the Section 221(d)(3) market rate
program,
                 if the project receives Rent Supplement or Section 8
                 assistance;

                 (ii) insured under the Section 221(d)(3) Below Market
                 Interest Rate (BMIR) program;

                 (iii)   insured or assisted under the Section 236 program;
or

                 (iv)    a Purchase Money Mortgage originated by HUD with
                 respect to a project which, prior to HUD's acquisition,
was
                 insured under a program referred to in clauses (i), (ii)
or
                 (iii) above; and

           (b)   that, under the terms of the mortgage or applicable
                 regulations in effect before February 5, 1988, is or will
                 within one year become eligible for prepayment without
HUD's
                 consent.


     Any requests for prepayment of mortgages to which Section 221 of
the
Housing and Community Development Act of 1987 is or may be applicable
should be forwarded to the Department of Housing and Urban Development,
451-7th Street, S.W., Washington, D.C. 20410-8000, Attention: Office
of
Multifamily Housing Management.

                                       Sincerely,

                                       Thomas T. Demery
                                       Assistant Secretary


                     U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                                WASHINGTON, D.C. 20410-8000

                                      APR 28 1988

 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING
 - FEDERAL HOUSING COMMISSIONER                       Mortgagee Letter
88-13

TO:   ALL APPROVED MORTGAGEES

SUBJECT:   Sarabond Testing

     HUD is currently beginning to survey certain insured multifamily
projects (including Section 202) assisted under its programs to
determine
whether these properties were constructed with Sarabond, a Saran latex
mortar additive manufactured and sold by Dow Chemical Company.
Sarabond
has been the subject of several private sector suits against Dow where
building owners claim that it causes corrosion of metals embedded in
the
mortar and brick panels and may even precipitate major cracking in the
building's structure. Charges linking Sarabond to serious damage in
structures where it has been used are increasing. At this point in our
investigation, we have no firm idea as to the extent of Sarabond use in
projects financed under HUD programs nor the actual nature of any
hazard
it might represent.
     We will be requesting project owners participating in our programs
to
test their buildings for indicators of the presence of Sarabond. These
tests are only preliminary. Where results indicate its possible
presence,
further in-depth tests will be conducted to determine conclusively
whether it was used. We will also, at that time, be assessing
potential
problems Sarabond may have caused in buildings where its use is
discovered.

      You may be the mortgagee for one or more of the buildings which
will
be tested. The Department felt that you should be aware that these
tests
are taking place. If circumstances warrant, we may contact you again
with
further information.

                                        Sincerely yours,

                                        Thomas T. Demery
                                        Assistant Secretary

Note:   If there are any questions, please contact Mr. Gains E. Hopkins,
        Senior Attorney for Multifamily Housing Finance, (202) 755-7067)



                   U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                               WASHINGTON, D.C. 20410-8000

                                    May   31, 1988

OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING-FEDERAL HOUSING COMMISSIONER

                                                     Mortgagee Letter
88-19

  TO:   ALL APPROVED MORTGAGEES

   SUBJECT:   Employment of Individuals That Have Been Debarred,
Suspended
              or the Subject of a Limited Denial of Participation

       The purpose of this Mortgagee Letter is to reemphasize the
  Department's policy concerning employment by approved mortgagees of
  individuals that have been suspended, debarred or the subject of a
  limited Denial of Participation under the provisions of HUD's
  regulations at 24 CFR Part 24.

        Approved mortgagees may not employ any individual or entity
whose
   duties involve, directly or indirectly, programs administered by HUD
   where the mortgagee knows or should have known that the individual
or
   entity is debarred, suspended or the subject of a Limited Denial of
   Participation. The Department will affirmatively seek
administrative
   sanctions, including withdrawal of HUD-FHA approval, against
mortgagees
   that do not comply with this policy.

          The Department expects all mortgagees to check the Consolidated
     List of Debarred, Suspended and Ineligible Contractors and Grantees
as
     well as confirming eligibility with the applicant, when employing
     individuals in their HUD-FHA insured mortgage operations. This List
is
   mailed by the Department to all mortgagees approved for the Direct
   Endorsement program. Mortgagees not approved for the Direct
Endorsement
   program should contact the local HUD Field Office for specific
   information concerning suspended and debarred individuals and
entities
   on this list. The imposition of a Limited Denial of Participation
is an
   action that is taken by the local HUD Field Office. Mortgagees
should
   check with the HUD office in their jurisdiction for information
   concerning individuals who may be subject to such action.

         HUD places great reliance on all approved mortgagees to
maintain
   effective quality control procedures with respect to their HUD-FHA
   insured mortgage operations. We view the exclusion of individuals
who
   have been debarred, suspended or the subject of a Limited Denial of
   Participation from the HUD-FHA mortgage insurance programs as an
   important element in a mortgagee's quality controls. Your support
and
   cooperation will assist us in reducing the risk that such
individuals
   pose to the integrity of our programs.

           Should you have further questions, you may contact Andrew
     Zirneklis, Office of Lender Activities and Land Sales Registration
at
     (202) 755-6924.

                                         Sincerely yours,

                                         Thomas T. Demery
                                         Assistant Secretary

                                U.S. DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT
                                WASHINGTON, D.C. 20410-8000

                                    July 11, 1988

OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING-FEDERAL HOUSING COMMISSIONER            Mortgagee Letter 88-22
     TO:   ALL APPROVED MORTGAGEES

     SUBJECT:    Annual Inspection of Insured Projects

         BACKGROUND. Regulations for HUD mortgage insurance programs
     require mortgagees to annually inspect each insured project and to
     give HUD and the project owner a report on that inspection. The
     inspection and reporting requirement is also included in the
     Mortgagee Certificates that were signed at loan closing. While
     some of you have annually submitted effective reports, other
     mortgagees have either not reported or have made only cursory
     inspections and submitted reports that are of little use.

           PURPOSE OF THIS LETTER.   This letter:

           1.   Establishes standards that all mortgagees must comply
                with when conducting annual inspections and reporting the
                results of those inspections.

           2.   Puts all mortgagees on notice that the Department will
                aggressively monitor and enforce mortgagees' compliance
                with these annual inspection requirements. These reports
                are valuable as they enable our field staff to detect
                developing problems.

         APPLICABILITY. This letter applies to fully insured
     multifamily mortgages. For coinsured multifamily mortgages,
     mortgagees must follow the narrative procedures in Chapter 6 of
     Handbook 4566.2, Management, Servicing and Disposition
     Requirements for Projects with 223(f) Coinsured Loans. Appendix
     20 of that Handbook will be revised to substitute the attached
     Form-9822 for the Form HUD-9822 now shown there.

           INSPECTION REQUIREMENTS

           1.   You must inspect each insured property at least once in
                each calendar year. Generally, you should schedule
                inspections so that each property is visited every 12-15
                months. We suggest that you consult, by phone or in
                person, with the local HUD Field Office in developing
                your inspection schedule for each year. The Field
                Office's Housing Management staff can inform you of any
                repairs they have required and any on-site visits they
                have scheduled. You may wish to schedule your
                inspections around those activities.


2.   You should ask the owner or management agent to accompany
     you on the inspection. If neither the owner/agent can do
     so, you should require the agent to arrange for the
     resident manager or maintenance supervisor to accompany
     you.

3.   Before conducting your inspection, you should:

     a.    Ask the HUD Field Office if there are any outstanding
     maintenance problems or repair schedules you should
     check on.

b.   Check your files to determine if:

     1)   Past inspections or recent correspondence
          reported maintenance problems.

     2)   Recent insurance loss drafts or replacement
          reserve withdrawals should have been used to make
          repairs.

     3)   Responses were made to previous inspections,
          where necessary.

     4)   During the inspection, you must:

          a)   Walk through the project's grounds, common
               areas, office and maintenance work areas.

          b)   Determine if any maintenance or repairs
               required by you or HUD have been acceptably
               completed or are underway and progressing on
               schedule.

          c)   Inspect at least two vacant units
               - preferably ones that have not been cleaned or
               repaired and ones that are considered ready
               for occupancy. These units should be
               randomly selected from the list of vacancies.

          d)   Ask the project representative accompanying
               you about:

               1.   Major Physical Improvements or Repairs.
                    Have any been completed recently? Are
                    any planned or needed? What funds were
                    or will be used to pay for the
                    repairs/improvements?


                    2.   Maintenance Systems and Procedures. How
                         does management process work orders? Has
                         a preventive maintenance schedule been
                         established and is it being followed? Is
                         there a schedule for inspecting and
                         decorating units? Is tenant damage to
                         units excessive?

                    3.   Cause of Any Maintenance Problems at the
                         Project.

               e)   Assess the condition of the items listed in
                    Part B of form HUD-9822, Physical Inspection
                    Report. (A copy of the report is attached to
                    this Letter.)
             f)   Either provide a narrative which will provide
                  HUD with a general feel for the condition of
                  the project or provide pictures that will
                  provide the same information.

        5)   At the end of the inspection, verbally summarize
             for project management the observations and
             conclusions you will include in your report.

REPORTING REQUIREMENTS

1.   Within 30 days after the inspection, you must send the
     HUD Field Office and the project owner a written report
     on your inspection. The report must be prepared on Form
     HUD-9822, Physical Inspection Report. The cost estimates
     box on the form is not to be filled in by the mortgagee.
     This box will be used by HUD to estimate cost
     projections.

2.   In the Comments Section (Part E) of the Report, you must
     discuss the topics listed below. All comments should be
     cross-referenced to a particular line item in Parts B, C
     or D of the Report.

             a.   Any maintenance needs noted in Part B of the
                  Report. If the maintenance is urgently
                  needed, you should suggest a target
                  completion date.

             b.   Any problems noted in Part C of the Report.

             c.   Mortgagees opinion as to reasons for any
                  below average or unsatisfactory rating given
                  in Part D of the Report.


 3.   The cover letter transmitting the report must require the
      owner to:

      a.   Give you a written statement as to how and when the
           project will correct any deficiencies noted in the
           mortgagee's report.

      b.   Send the HUD Field Office a copy of his/her response.

      c.   Complete actions (a) and (b) within 30 days of the
           date of your transmittal letter.

 4.   If a response is not received within the prescribed time
      period, follow-up action should be undertaken i.e.,
      written request to mortgagor to comply with previous
      letter with a carbon copy to the Field Office.

 Forms Distribution. You may obtain a supply of Form HUD-9822,
 Physical Inspection Report, from any HUD Field Office.

 Effective Date.   This Mortgagee Letter applies to all
    inspections made on or after September 11, 1988.

     If you have any questions regarding this Mortgagee Letter,
please contact James J. Tahash at (202)426-3944.

                                   Sincerely yours,

                                   Thomas T. Demery
                                   Assistant Secretary

Attachment


                 U.S.DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                             WASHINGTON,D.C. 20410-8000

                              August 26, 1988

 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING
  - FEDERAL HOUSING COMMISSIONER

                                                  MORTGAGEE LETTER
88-29

ALL APPROVED MORTGAGEES

SUBJECT:   FHA Debentures

     As of August 26, 1988, the Department of Housing and Urban
Development
(HUD) will begin processing Federal Housing Administration (FHA)
Debentures
through the Federal Reserve Bank in Philadelphia (FRBP) rather than
through
the Department of the Treasury (Treasury). The FRBP will process all
debenture related transactions except special redemption purchases.
These transactions will be initially processed by HUD before being
forwarded to FRBP.

     All inquiries involving FHA Debentures, including special
redemption
purchases, shall be directed to the FRBP.

    The address of the FRBP is:
     Federal Reserve Bank
     Securities Division
     P.O. Box 90
     Philadelphia, PA 19105-0090
     (215) 574-6189

    The FRBP address for couriers is:
     Federal Reserve Bank
     Securities Division
     100 N. Sixth Street
     Philadelphia, PA 19105
     HUD is seeking legislative authority to convert to a book-entry
system
and will implement such a system once the necessary legislation is
enacted.

                           Sincerely yours,

                           Thomas T. Demery
                           Assistant Secretary for Housing
                             - Federal Housing Commissioner, H



                U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                            WASHINGTON, D.C. 20410-8000

                                March 28, 1989

OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING-FEDERAL HOUSING COMMISSIONER

                                                      Mortgagee Letter
89-12

        TO:   ALL APPROVED MORTGAGEES

        ATTENTION:   Multifamily Mortgagees

        SUBJECT:   Investment of Replacement Reserves and Residual
                      Receipts in Tax-Exempt Securities

              HUD encourages, and in many programs requires, owners to
        invest Replacement Reserve and Residual Receipts funds in order
to
        offset inflationary increases in repairs and replacement costs
and
        to enhance a project's financial condition.

              Mortgagee Letter 83-24 permitted the investment of
        Replacement Reserves and Residual Receipts funds only in Treasury
        securities, securities issued by a Federal agency, or deposits
        which are insured by an agency of the Federal government. While
        HUD encourages and often requires the investment of these funds,
        provisions in the Tax Reform Act of 1986 may prohibit mortgagors
        from offsetting taxable interest earnings on these accounts with
        passive losses from a project. Thus, there may be a disincentive
        to invest in taxable securities/accounts.

            For this reason, we have reevaluated Mortgagee Letter 83-24
      and have attempted to identify a tax-exempt security or
securities
      which could be used as an investment of Replacement Reserve and
      Residual Receipts funds. We have sought to identify secure,
      liquid instruments, for which the return of principal and payment
      of interest are assured, to the maximum possible extent.

              Effective immediately, in addition to the investments
      currently permitted in Mortgagee Letter 83-24, HUD will permit
the
      purchase of the following tax-exempt securities:

      1.     AAA rated GNMA collateralized tax-exempt bonds.
      2.     AAA rated prerefunded bonds. These are bonds that
originally
             may have been issued as general obligation or revenue bonds
             but are now secured, until the call date or maturity, by an
             "escrow fund" consisting entirely of direct U.S. government
             obligations that are sufficient for paying the bondholders.


NOTES OF CAUTION

1.    In order to assure that required amounts have been paid into
      the Replacement Reserves and Residual Receipts accounts, the
      actual costs (which in many cases may not be the face value)
      of these and other approved securities, must be shown on the
      project books. In addition, details of these transactions
      should be disclosed in the footnotes to the Annual Financial
      Statement.

2.    When HUD approves disbursements from Replacement Reserves or
      Residual Receipts funds and the funds are invested in these
      and/or other permitted securities, mortgagees must, to the
      extent that reserves are available, assure that securities
      are sold in an amount which results in proceeds sufficient to
      cover the disbursement.

3.    Since the sale or redemption of these securities, as well as
      others already permitted, may result in cash proceeds of less
      than the amount invested, Chapter 4, Section 10, paragraphs
      1(c)(3) of Handbook 4350.1, SUPP 1 "Insured Project Servicing
      Handbook" applies.

4.    It is incumbent upon owners and managers, when making
      decisions on the purchase of these and other approved
      securities, to carefully consider the potential losses which
      may arise from sale or redemption of the securities.

5.    Since HUD is limiting the purchase of these securities to
      those that are AAA rated, HUD will not permit, as an
      operating cost, fees for a Financial Advisor to assist in
      selecting such securities for investment.

     Questions on the above may be addressed to your local HUD
office or the office of Multifamily Housing Management, Planning
and Procedures Division, phone (202) 426-3944. This is not a toll
free number.

                                Sincerely yours,

                                General Deputy Assistant Secretary
                                  for Housing
                 U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                            WASHINGTON, D.C. 20410-8000

                              December 26, 1989

OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING-FEDERAL HOUSING COMMISSIONER
                                                       Mortgagee Letter
89-32

      TO:   ALL APPROVED MORTGAGEES

      SUBJECT:   Quality Control Plan for Approved Mortgagees

         The purpose of this letter is to advise all approved
mortgagees of
    a significant change in the Department's requirements for
maintaining a
    Quality Control Plan for the origination and servicing of HUD-FHA
    insured mortgages.

            One of the principal HUD-FHA objectives has been to improve
the
      quality of loan origination and servicing by approved mortgagees.
In
    keeping with this objective, the Department requires approved
    mortgagees to have a written Quality Control Plan for loan
origination
    and servicing. This requirement is contained in HUD-FHA
regulations 24
    CFR Section 203.2(j). To date, the Department has not required a
    specific Quality Control Plan to be implemented by mortgagees.
    However, guidelines for quality control procedures were provided in
HUD
    Handbook 4060.1, Mortgagee Approval Handbook. These guidelines
have
    remained essentially unchanged since 1980.

           Effective immediately, the Department has established minimum
      requirements for an acceptable Quality Control Plan for mortgagees
for
      loan origination and servicing.   The new requirements are set forth
in
    the enclosure to this Mortgagee Letter. All approved mortgagees
must
    take immediate action to ensure that their existing Quality Control
    Plan meets the HUD-FHA requirements. Failure to comply with these
    requirements is grounds for an administrative sanction by the
Mortgagee
    Review Board including the withdrawal of HUD-FHA mortgagee
approval.

           We believe that the new requirements will benefit approved
      mortgagees and the Department in improving the quality of HUD-FHA
    insured mortgages and reducing the risk to the Department's
insurance
    funds. These new requirements are based on the Department's
extensive
    experience in carrying out its monitoring activities with respect
to
    mortgagees. They are representative of quality control measures
    currently used by a large segment of the mortgage lending industry
and
    should not impose an undue burden on any mortgagee doing HUD-FHA
    business. We will revise HUD Handbook 4060.1 in the near future to
    incorporate these requirements.

         If you have any further questions concerning this letter,
please
    contact the office of Lender Activities and Land Sales Registration
at
    (202) 755-6924.

                                      Sincecerely,

                                      C. Austin Fitts
                                      Assistant Secretary for Housing
                                      - Federal Housing Commissioner

     Enclosure



             QUALITY CONTROL PLAN FOR LOAN ORIGINATION AND SERVICING

REQUIREMENT. As a condition of HUD-FHA approval, mortgagees must have
implemented a plan for quality control in the origination and if
servicing
HUD-FHA insured mortgages, a plan for quality control in servicing HUD-
FHA
insured mortgages. The Quality Control Plan must meet the requirements
set
forth herein. It must be a prescribed function of the mortgagee's
operations and assure that the mortgagee maintains compliance with HUD-
FHA
requirements and its own policies and procedures. It must be
sufficient in
scope to enable the mortgagee to evaluate the accuracy, validity and
completeness of its loan origination and servicing operations. It must
provide for independent evaluation of the significant information
gathered
for use in the mortgage credit decision making and loan servicing
process
for all loans originated or serviced by the mortgagee. The Quality
Control
Plan must enable the mortgagee to initiate immediate corrective action
where discrepancies are found.

a.   Policy and Objectives. Approved mortgagees must establish a
     formalized quality control plan which utilizes a program of
internal
       or external audit or provides for an independent review by the
       mortgagee's management/supervisory personnel who are knowledgeable
and
     have no direct loan processing, underwriting or servicing
     responsibilities. The quality control plan must provide for
periodic
     reports which will identify for senior management areas of
deficiency
     including, for example, errors and omissions, unacceptable
patterns or
     trends, as well as fraud and intentional violations of
regulations.
     Senior management must initiate prompt and effective corrective
     measures to eliminate the deficiencies. All employees involved in
     loan origination and servicing must be familiar with and
understand
     the mortgagee's policies and procedures regarding quality control.

       The primary objectives of the quality control plan are to:

       1)   Assure compliance with HUD-FHA requirements.

       2)   Assure that the mortgagee's policies and standards are known
and
            adhered to by its personnel.

     3)     Assure that the mortgagee's procedures are revised in a
timely
            manner to accurately reflect changes in HUD requirements;
keep
            its personnel informed of the changes; and assure that
employees
            are held accountable for performance failures or errors.

     4)     Assure that prompt and effective corrective measures are
taken
            and documented when deficiencies in loan origination,
            underwriting or servicing are identified and to inform its
            personnel when deficiencies are found.


      5)    Assure that procedures exist for expanding the scope of
quality
            control reviews where fraudulent activity or patterns of
            deficiencies are identified.

b.     Scope. The quality control plan must provide for a review of not
       less than ten percent of all HUD-FHA insured mortgages originated
by
      the mortgagee on a monthly basis including its branches, loan
      correspondents and authorized agents. A representative sample of
      mortgages that is sufficient in number being serviced by the
      mortgagee, or its servicing agent, must also be reviewed to
assure
      that HUD-FHA mortgage servicing policies and requirements are
being
      met. For each branch office that originates or services HUD-FHA
        insured mortgages, an on-site branch office review should take
place
      at least once every year. The Quality Control Plan must also
provide
      for a review of the mortgagee's files and records to determine
      compliance with HUD's Affirmative Fair Housing Marketing
Regulations.

        Quality control reviews must include:

        1)   Selection of loans on a random basis including loans from all
             branch offices, authorized agents, loan correspondents and
             servicing agents.

        2)   Assurance that all loan officers, underwriters, appraisers
and
             servicers will have loans subjected to reviews.

        3)   Analysis of all loans which go into default with six or fewer
             payments made by the mortgagor.

      4)     Procedures for expanding the scope of the review where a
pattern
             of deficiencies or fraudulent activity is disclosed.

c.    Initiate Corrective Action. The quality control plan must
require
      written notification to the mortgagee's senior management, at
least
      quarterly, of deficiencies cited as a result of the reviews.
Senior
      management must promptly initiate action to correct all
deficiencies.
      The actions taken by management must be formally documented by
citing
      each deficiency, identifying the cause of the deficiency, and
      providing management's response or actions taken. Management
should
      assure that documentation is promptly distributed to all loan
      origination, underwriting and servicing personnel. Employees
should
      be provided with corrective instructions where patterns of
      deficiencies are identified in processing, underwriting or
servicing.

d.    Notification to HUD of significant Discrepancies. Approved
      mortgagees are required to report any violation of law or
regulation,
      false statements or program abuses by the mortgagee, its
employees or
      any other party to the transaction to the HUD Regional office,
the
      HUD Area office or to the HUD Regional office of Inspector
General
      (refer to HUD Handbook 4000.2 REV-1).

3
e.     Required Elements of the Quality Control Plan.

       1)    General

             The quality control plan must:

             a)   Assure that each office of the mortgagee including, if
                  applicable, its approved Loan Correspondent(s),
Authorized
                  Agent(s), service centers and branches maintain copies
of
                  all HUD issuances, including regulations, handbooks,
                  mortgagee letters, circular letters, etc., which are
                  relevant to the mortgagee's HUD-FHA origination and
                  servicing activities. These documents must be accessible
to
                  all employees, periodically reviewed with appropriate
staff,
                  and kept current.

             b)   Assure that all loans submitted by the mortgagee to HUD-
FHA
                  for mortgage insurance endorsement are processed by
                  employees of the mortgagee, its approved Loan
                  Correspondent(s) or Authorized Agent(s).

             c)   Assure that HUD-FHA Mortgage Insurance Premiums (MIP's)
are
                  remitted within 15 days from the date of loan closing
and
                  that late charges and interest penalties are promptly
                  submitted.

             d)   Assure that sales of HUD-FHA insured mortgages by the
                  mortgagee or transfers of loan servicing are properly
                  reported to HUD on Form HUD 92080, Mortgage Record
Change
                  and that the purchaser be advised of any loans subject
to a
                  HUD audit or investigation.

             e)   Assure that the termination of HUD-FHA mortgage
insurance
                  of a mortgage is properly reported to HUD on Form
                  HUD 2344, Lender's Request for Termination of Home
Mortgage
                  Insurance and that an assumption of a mortgage is
properly
                  reported on Form HUD 92080, Mortgage Record Change.

             f)   Assure that escrow funds received from mortgagors are
not
                  excessive and are not used for any purposes other than
that
                  for which they are received.
            g)   Assure that the mortgagee does not employ for HUD
                 origination, underwriting or servicing any individual
who is
                 debarred, suspended or subject to a Limited Denial of
                 Participation (LDP).


      h) Assure that the mortgagee is in compliance with the provisions
         of the Real Estate Settlement Procedures Act (RESPA),
including
         distribution to mortgagors of the Special Information Booklet
         and good faith estimates which bear a reasonable relationship
         to actual costs, and, disclosure of business relationships
         with a particular provider of services.

      i)   Assure that the mortgagee keeps records of quality control
           findings and actions taken.

2)    Loan Origination

      a.   General requirements:

           1)   The quality control plan must provide for the review of
                loans rejected by the mortgagee. These loans cannot be
                included in the ten percent review requirement.

           2)   The quality control plan must provide for the written
                reverification of the mortgagor's employment, deposits,
                gift letter or other sources of funds and re-ordering
                of a new credit report from another credit source. The
                report must be a Residential Mortgage Credit Report
                (RMCR).

           3)   Direct Endorsement lenders must perform field reviews on
                not less than ten percent of the appraisals performed by
                their own staff appraisers.

           4)   Quality control reviews should be performed within 90 days
                of closing of the loan.

      b.   Specific requirements:

           The plan must provide for a review of the origination and
           underwriting function in order to:

           1)   Determine whether each loan file contains all required
                loan processing, underwriting and legal documents.

           2)   Determine whether a face-to-face interview was performed
                with the mortgagor prior to the signing of the fully
                completed loan application Form HUD 92900 and submission
of
                the loan for underwriting.

           3)   Determine whether relevant loan documents were signed in
                blank by the mortgagor or employee(s) of the mortgagee;
and
             that all corrections were initialed by the mortgagor or
             employee(s) of the mortgagee.

         5

             4)    Determine whether verifications of employment,
                   verifications of deposit and the credit report were
                   handled by any interested third party or the
mortgagor.

             5)    Determine whether credit report(s) were ordered from
an
                   authorized credit bureau or agency and if more than
one
                   credit report was ordered; determine whether all
credit
                   reports were submitted with the loan package to HUD-
FHA.

              6)   Determine whether the preliminary loan application
lists
                   each outstanding liability and each asset of the
                   mortgagor that was used to qualify for the mortgage.

              7)   Determine whether any outstanding judgements shown
on
                   the credit report were shown on the Form HUD 92900
with
                   an accompanying explanation and documentation.
                   Explanations are not acceptable where there is a
                   delinquency or judgement involving a debt to the
Federal
                   Government.

              8)   Determine whether the loan file contains pertinent
                   documentation if the mortgagor's source of funds for
the
                   required minimum investment was other than deposits
in a
                   savings institution and whether the source of funds
was
                   verified.

              9)   Determine whether the loan file contains a financial
                   statement and a business credit report if the
mortgagor
                   is self-employed.

             10)   Determine whether any gift letter reflects intention
of
                   repayment of funds, the relationship of donor to
                   mortgagor and whether the funds were deposited.

             11)   Determine whether the HUD-1 settlement statement was
                   accurately prepared and certified to properly. This
                   involves comparison of the HUD-1 with other relevant
                        loan documents to determine whether the mortgagor
made
                        the required minimum investment and whether any
seller's
                        credit resulted in an over-insured mortgage.

                  12)   Determine whether the loan was current at the time
it
                        was submitted to HUD-FHA for mortgage insurance
                        endorsement.

                  13)   Determine whether the mortgagor transferred the
property
                        at the time of closing or soon after closing
indicating
                        the possible use of a "strawbuyer" in the
transaction.


            14)   Determine whether there was written reverification of the
                  mortgagor's employment, deposits, gift letter or other
                  source of funds and a new credit report re-ordered.

            15)   Determine whether all conflicting information or
                  discrepancies were resolved and properly documented in
                  writing prior to submission of the loan to HUD-FHA for
                  mortgage insurance endorsement. This involves comparison
                  of the preliminary loan application and original
                  verifications of employment, verifications of deposit,
                  credit report and other relevant loan documents with the
                  final loan application Form HUD 92900 and all
                  reverification documents.

            16)   Determine whether a field review of the appraisal was
                  performed.

            17)   Determine the accuracy and completeness of underwriting
                  conclusions and mortgagee documentation.

3)     Loan Servicing

       a.   General requirements:

            1)    The quality control plan must provide for the selection
of
                  loans on a random basis that are in sufficient numbers
and
                  represent the universe of HUD-FHA insured mortgages
                  serviced by the mortgagee or its agents.

            2)    The quality control plan must provide that all loan
                  servicing staff, including managers, will have their
loans
                  subject to review.

            3)    The quality control plan must provide for an analysis of
                  loans for general compliance with HUD-FHA servicing
                requirements, and special requirements such as assignment
                processing, Section 235 mortgages, forbearance, claims
                without conveyance, deficiency judgements and
foreclosure.

          4)    The quality control plan must provide for analysis of
                escrow administration.

          5)    The quality control plan must provide for an analysis of
                operating procedures for collection and recordation of
                payment receipts; escrow bills; disbursements from
escrow;
                and claim submissions.

          6)    The quality control plan must provide for the analysis of
                loans in foreclosure to determine compliance with HUD-FHA
                fiscal requirements and procedures such as extension
                requests, property preservation and requirements and
                inspections.


       b.      Specific requirements:

               The plan must provide for a review of the loan servicing
               function in order to:

               1)   Determine that the mortgagee promptly establishes loan
                    servicing records after loan closing and that the
                    servicing records contain the information necessary for
                    the mortgagee to properly service the mortgage in
                    compliance with HUD Handbook 4330.1, HUD regulations,
                    Mortgagee Letters and instructions for the submission
of
                    claims.

               2)   Determine that mortgagors have been notified when the
                    mortgagee acquires servicing from another mortgagee and
                    that loan servicing records are promptly established
                    immediately upon transfer of a loan to the mortgagee's
loan
                    servicing portfolio.

               3)   Determine through review of individual loan servicing
                    records that the amount of fees and charges imposed on
the
                    mortgagor do not exceed those permitted by HUD-FHA and
the
                    mortgage provisions.   Among these are:

                    a)   Late charges and partial mortgage payments properly
                         assessed;

                    b)   Annual analysis of escrow account including
                         appropriate adjustments, and disbursements made
                         promptly as the items for which the escrow was
                         established become due and payable;
                   c)   Fee or penalty not charged for prepayment or
                        reinstatement of mortgage;

                   d)   Attorney's fee collected only for the initiation
                        of foreclosure proceedings; and

                   e)   Assumption fees

              4)   Determine that requests from mortgagors concerning
their
                   individual mortgage accounts are promptly responded to.

              5)   Determine that mortgagor escrow accounts are not
commingled
                   with the mortgagee's operating accounts.

              6)   Determine that Section 235 recertifications are
performed
                   annually and assistance payments are accurately
                   computed using the proper formula and that the income
used
                   for computing the assistance payments is compared to
the
                   income included in the mortgagor's income verification.


             7)    Determine that a claim for insurance benefits, form
                   HUD-27011, submitted to HUD-FHA for payment, was
properly
                   calculated and the claim amount fully supported.

             8)    Determine that all defaulted loans with six payments or
                   less are promptly identified and analyses performed in
                   order to identify any origination or underwriting
                   deficiencies once the defaulted loan has been
identified.

             9)    Determine that mortgagors are provided every reasonable
                   opportunity to remedy a delinquency or default including
                   forbearance and recasting prior to a determination
                   regarding foreclosure proceedings.

            10)    Determine that deeds-in-lieu are pursued where
                   appropriate and that deficiency judgements are taken
                   where required.

            11)    Determine that adequate collection activities and
accurate
                   documentation of collection efforts, including
                   documentation of the referral of the mortgagor to a
                   HUD-approved counseling agency is maintained.

            12)    Determine that a face-to-face interview with the
mortgagor
                   is attempted before three full mortgage installments
                   become delinquent. If the face-to-face interview was
not
                conducted, documentation must be provided of the
                permissible exception allowed by HUD.

          13)   Determine that an acceptable method of forbearance
relief
                is provided to the mortgagor prior to initiation of
                foreclosure proceedings; review individual forbearance
                agreements and supporting financial data submitted or
                disclosed by the mortgagor to assure that they are
                reasonable.

          14)   Determine that property inspections to protect and
                preserve the property are performed when the mortgagor
                fails to make a mortgage payment and no contact is
                possible within 45 days of the due date, or if the
                mortgage is in foreclosure and the property is vacant.

          15)   Determine that HUD-FHA reporting requirements under the
                Single Family Default Monitoring System are complied
                with. This includes the accurate and timely submission
                of both monthly and quarterly reports.

           16)   Determine that mortgagors are notified of the
                 availability of mortgage foreclosure relief under the
home
                 mortgage assignment program and that HUD-FHA
requirements
                 for processing assignment applications are complied
with.

           17)   Determine that foreclosure proceedings are initiated
and
                 completed on a timely basis and in accordance with
HUD-FHA
                 requirements.

           18)   Determine that there are sufficient controls to assure
                 that all aspects of the claims for insurance benefits
                 are accurately prepared and on a timely basis to
                 minimize the loss to HUD.

           19)   Determine that HUD pamphlet HUD-426 is mailed to all
                 mortgagors no later than the second month of
                 delinquency.

           20)   Determine that mortgagor information is reported
                 regularly to credit reporting bureaus.




                 U.S.DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                           WASHINGTON, D.C. 20410-8000

                             January 11, 1990

OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING
- FEDERAL HOUSING COMMISSIONER
                                                        Mortgagee Letter
90-2

TO:    ALI APPROVED MORTGAGEES

SUBJECT:   Prepayment of HUD-Insured Mortgage by an Owner of
           Low-Income Housing

     The recent passage of the Housing and Urban Development
Reform Act of 1989 made important changes in the restrictions
applicable to the prepayment of HUD mortgages financing lower
income housing.

     Section 201 of the Act amends Title II of the HCD Act of 1987
to extend its expiration date from February 5, 1990 to September
30, 1990. The present regulations and procedures for processing
prepayment requests remain in effect covering mortgages insured,
held or assisted under Section 221(6)(3), 221(d)(5) and 236 of the
National Housing Act.

     In addition, Section 202 of the Act amends Title II of the
HCD Act of 1987 to include prohibition of voluntary termination of
mortgage insurance at the request of the mortgagor and the
mortgagee. Effective immediately the mortgage insurance contract
on mortgages covered under Title II of the HCD Act of 1987 may
be terminated only in accordance with a plan of action approved by
the Secretary under Title II. Likewise, with respect to any
mortgage whose prepayment is subject to Section 250(a) of the
National Housing Act, Section 202 provides that HUD may approve
the voluntary termination of mortgage insurance only after making
the determinations set forth in Section 250(a).

     Any questions concerning requests for prepayment of mortgages
or termination of mortgage insurance should continue to be
directed to the Department of Housing and Urban Development, 451
Seventh Street, S.W., Washington, D.C. 20410-8000, Attention:
Office of Multifamily Housing Management

                                     Sincerely yours,

                                     C. Austin Fitts
                                     Assistant Secretary



                      U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                               WASHINGTON, D.C. 20410-8000

                                     February 21, 1990

OFFICE OF THE ASSISTANT SECRETARY FOR
 HOUSING-FEDERAL HOUSING COMMISSIONER
                                                         Mortgagee Letter
90-5

           TO:   ALL APPROVED MORTGAGEES
         SUBJECT:   Standards for Audits of All HUD-Approved
                    Nonsupervised Mortgagees and Loan Correspondents

              HUD's regulations at Section 203.4(b)(4) require
         nonsupervised mortgagees (and loan correspondents by
         authority of Section 2035(b)) to submit an annual audit
         report as a condition of continued HUD-FHA approval. The
         substance and format for these audit reports is set forth in
         HUD Handbook IG 4000.3 REV-2, Audit Guide for Use by
         Independent Public Accountants in Audits of HUD-Approved
         Nonsupervised Mortgagees, Loan Correspondents, and Coinsuring
         Mortgagees (Audit Guide), dated January 1987. It has come to
         the Department's attention that many of the audit reports
         prepared by independent public accountants (IPA's) and
         submitted by mortgagees are not in compliance with the
         provisions of the Audit Guide.

              The Audit Guide requires IPA's to comply with generally
         accepted governmental auditing standards as established in
         the Standards for Audit of Governmental Organizations,
         Programs, Activities, and Functions (Government Auditing
         Standards), published by the Comptroller General of the
         United States. The Government Auditing Standards
         incorporate standards issued by the American Institute of
         Certified Public Accountants (AICPA), and add a number of
         supplemental standards to the AICPA Standards in order to
         meet the special needs for public accountability in the use
         of government assistance.

              For HUD's purpose, the IPA's must prepare a written
         supplemental evaluation of internal accounting controls and
         compliance testing as detailed in Appendix 1 of Audit Guide.
         The report on compliance testing is mandated by HUD's
         regulations at Section 203.4(b)(4)(ii).

              Many of the substandard audit reports fail to show that
         compliance tests and internal control reviews were performed.
         Positive and negative assurances in the IPA's supplemental
         report are often missing, along with a statement that the
         examination was performed in accordance with government
         accounting standards. A more detailed explanation of these
         specific problem areas is contained in an attachment to this
         Mortgagee Letter.

     An example of an acceptable audit report can be found in
Appendix 2 of the Audit Guide. Required audits of
HUD-approved mortgagees should be sent to:

         U. S. Department of Housing and Urban Development
         Office of Lender Activities and Land Sales
           Registration
         451-7th Street, SW, Room 9146
         Washington, DC 20410

     Effective immediately, HUD will only accept audit
reports which meet the substance and format requirements of
the Audit Guide. Audits received that do not meet HUD
Handbook IG 4000.3 requirements will be rejected. Mortgagees
are advised that grounds for administrative actions under the
jurisdiction of the Mortgagee Review Board include the
failure of a mortgagee to submit the required annual audit of
its financial condition, an evaluation of internal accounting
controls and compliance testing prepared in accordance with
HUD instructions. The audit requirement has been approved by
the Office of Management and Budget and assigned approval
number 2502-0005.

     If you have any further questions concerning this
letter, please contact the Office of Lender Activities and
Land Sales Registration at (202) 755-6924.

                          Sincerely

                          C. Austin Fitts
                          Assistant Secretary for Housing
                            - Federal Housing Commissioner

Attachment

                                                             ATTACHMENT

Compliance Testing

     The compliance tests identified in Appendix 1 of HUD
Handbook IG 4000.3 are intended to guide the IPA in reviewing
the mortgagee's books and records and fulfilling the audit
requirements of this guide. The IPA's supplemental report
regarding tests of compliance shall also contain positive and
negative assurances. A positive assurance consists of a
statement by the IPA that the tested items were in compliance
with applicable laws and regulations. A negative assurance
is a statement that nothing came to the IPA's attention as a
result of specified procedures that caused the IPA to believe
that the untested items were not in compliance with
applicable laws and regulations.

     The report on compliance testing shall include all
material instances of noncompliance and all instances or
indications of illegal acts along with the IPA's
recommendations and observations warranting the attention of
both the mortgagee and HUD officials. The views and comments
of mortgagee officials shall be included for each item.
Comments shall also be made as to the status of the
corrective action taken or to be taken by the mortgagee on
these items.

     It is expected that errors or exceptions which the IPA
judges to be significant or that represent a pattern of
noncompliance with HUD regulations or instructions will be
reported. Minor procedural noncompliances that are not
illegal need not be disclosed. The IPA shall attempt to
identify the condition, criteria, effect, and cause of each
weakness to permit timely and proper corrective action.
     In instances of fraudulent reports or statements to HUD
and defalcations related to FHA-insured mortgages or Section
235 subsidy payments, the IPA shall advise the mortgagee of
the possible irregularity and obtain documented assurance
prior to issuance of the audit report, that the mortgagee has
fully disclosed the particulars of the possible irregularity
to HUD's Assistant Inspector General for Audit or other
appropriate HUD officials. If the mortgagee does not make
such notification, the IPA must do so.

     A nonsupervised mortgagee or loan correspondent that
originates 100 or fewer HUD-insured single family mortgages
annually may choose to submit a Management Letter and
Management Letter Response as an alternative to the
compliance tests. All coinsuring mortgagees must have the
compliance tests performed, regardless of the number of
mortgages originated.

     Evaluating the significance of departures from
compliance with HUD regulations or guidelines requires the
exercise of professional judgment by the IPA. The compliance
tests are not intended to limit that judgment.

     Evaluation of Internal Accounting Control. The audit
shall include an evaluation of internal accounting control.
Both AICPA standards and generally accepted government
auditing standards specify the need for a proper study and
evaluation of internal accounting control as part of the
audit.

     The study and evaluation establish a basis for
determining the extent to which auditing procedures are to be
restricted and are intermediate steps in forming an opinion
on the financial statements. The report shall identify as a
minimum: (1) the auditee's significant internal accounting
controls; (2) the controls identified that were evaluated;
(3) the controls identified that were not evaluated; and
(4) the material weaknesses identified as a result of the
evaluation. The IPA must attempt to identify the condition,
criteria, effect and cause to provide sufficient information
to permit timely and proper corrective action.

      If circumstances exist which justify not making a study
and evaluation of internal accounting control, the report
must explain why they were not made. This standard does not
require any additional audit effort other than that required
as part of a normal financial and compliance audit conducted
in accordance with generally accepted governmental auditing
standards as set forth by the Comptroller General.




             U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                           THE SECRETARY
                      WASHINGTON, D.C. 20410-0001
                          April 16, 1990

                                                        Mortgagee Letter
90-12

TO ALL HUD MORTGAGEES:

SUBJECT:   Reform Act of 1989

     As most of you are aware by now President Bush signed the
HUD Reform Act of 1989 into law on December 15, 1989. This
legislation is the culmination of a major effort on the part of
the Bush Administration and Congress to restore taxpayer
confidence in HUD programs, and represents the beginning of a new
era for HUD employees, agents, and private industry participants.
There will be no more "business as usual."

     Embodied within this legislation are provisions affecting
mortgagees. Mortgagees are key players and critically important
partners in the Department's programs. I feel very strongly that
the mortgage industry will respond positively to the directives
contained in the attached Mortgagee Letter that addresses
stricter HUD program enforcement and quality assurance methods.
Now that the legislation has been signed into law we can work
together as partners to ensure that no abuses of the public trust
take place in this area.

     With regard to your monitoring and oversight
responsibilities, I ask you to increase your diligence in
conducting quality physical inspections and monitoring the
financial conditions of the properties insured by the Department.
We must assure that the tenants are the recipients of
well-maintained housing. All mortgagees must take steps to tighten
monitoring of their own servicing as well as the mortgage
servicing of contractors.

     I can assure you of my personal commitment, and that of the
Department, to work with you in maintaining decent, safe and
sanitary conditions for the people living in HUD-assisted
housing. I know I can count on you in this effort.

                                Very sincerely yours,

                                Jack Kemp




               U.S.DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                          WASHINGTON, D.C. 20410-8000

                                April 16, 1990

OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING
- FEDERAL HOUSING COMMISSIONER
                                                     Mortgagee Letter
90-12

MEMORANDUM TO:   All Approved Mortgagees

ATTENTION:   Multifamily Mortgagees

SUBJECT:   Emphasis on Enforcement of Servicing Requirements

     HUD's regulations place obligations upon the Mortgagee to
service the multifamily insured mortgage in accordance with HUD's
requirements. It has come to the attention of the Department that
some mortgagees have not been following these requirements. In
addition, the Department is specifically aware that some
multifamily mortgagees have failed to perform the annual
inspection of each insured housing project which is required under
24 CFR Section 207.260(a), the Mortgagee Certificate, and
Mortgagee Letter 88-22 (dated July 11, 1988).

     This letter is to emphasize to all multifamily mortgagees
that the servicing requirements for multifamily insured mortgages
will be aggressively enforced by the Department. In that regard,
mortgagees should be alerted that the Department of Housing and
Urban Development Reform Act of 1989 (Act), establishes civil
money penalties for "knowing and material" violations of HUD/FHA
requirements. Under the Act, HUD will determine the amount of the
penalty, up to $5000 for each violation. Each mortgagee may be
penalized up to $1,000,000 per year. In the case of a continuing
violation, as determined by HUD, each day constitutes a separate
violation. The Act also statutorily authorizes the Mortgagee
Review Board (Board) to impose sanctions upon mortgagees that fail
to follow HUD/FHA requirements.

     We wish to specifically stress to multifamily mortgagees the
importance of meeting all of the Department's multifamily insured
mortgage servicing requirements, especially the annual inspection
requirements. The Department is preparing proposed rules setting
forth standards and procedures for implementing the civil money
penalties authorized under the Act. Mortgagees are on notice that
the Department will impose administrative penalties for knowing
and material violations of HUD requirements, including violations
of HUD/FHA servicing requirements for multifamily mortgages, that
are committed on or after the effective date of the regulations.

     Mortgagees violating HUD requirements are subject to the
imposition of sanctions by the Mortgagee Review Board under
existing regulations (24 C.F.R. Part 25) as well as under the
Act.

                                  Sincerely yours,

                                  C. Austin Fitts
                                  Assistant Secretary for Housing,
                                    Federal Housing Commissioner
                     U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                              WASHINGTON, D.C. 20410-8000

                                 April 26, 1990

OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING-FEDERAL HOUSING COMMISSIONER

                                                       Mortgagee Letter
90-13

        TO:   ALL APPROVED MORTGAGEES

        SUBJECT:   OMB's Guidance on Government-wide
                     New Restrictions on Lobbying

             You are hereby notified of the requirement to comply
        immediately with the new restrictions on lobbying called for by
        Section 319 (referred to as the Byrd Amendment) of Public Law
        101-121. OMB's Interim Final Common Rule, published for comment
on
        February 26, 1990 is enclosed. December 23, 1989 was the
        effective date of this new restriction. The Byrd amendment
        prohibits all applicants and recipients of Federal contracts,
        grants, loans, and cooperative agreements from using Federally
        appropriated funds for lobbying. It also requires disclosure of
        lobbying with other than Federally appropriated funds by each
        person who receives or requests financial assistance in the form
        of a contract, grant, loan, cooperative agreement or commitment
        for loan insurance or loan guaranty that exceeds the minimum
        dollar thresholds.

        APPLICABILITY:   The Byrd Amendment is applicable to applicants
and
      recipients and subcontractors of contracts, grants, or
cooperative
      agreements exceeding $100,000, as well as to loans or commitments
      to insure loans exceeding $150,000. This includes all
multifamily
      and coinsurance programs pursuant to Title II of the National
      Housing Act. For single family programs, the purchase of a
      personal residence is excluded from these requirements unless the
      mortgage amount exceeds $150,000. It must be emphasized that
even
      if the loan or grant amounts are not large enough to trigger the
      certification and disclosure requirements, the prohibitions
      against the use of Federally appropriated funds for influencing
or
      attempting to influence the actions of Federal officials apply.

        REQUIRED REPORTING: The OMB regulations require a certification
        that Federally appropriated funds are/ will/ have not been used
in
        violation of Section 319 and that disclosure will be made of
        payments for lobbying with other than Federally appropriated
        funds. This certification is to be submitted by applicants as
     part of the application process for the "covered Federal actions"
     described above. Civil penalties from $10,000 to $100,000 can be
     assessed for noncompliance.


Copies of the standard certification language are attached. There
are two versions; one is called a "certification" and is for
contracts, grants, loans and cooperative agreements. The other is
called a "statement" and is for loan guarantees and loan
insurance. There is also a standard disclosure form, Standard
Form - LLL "Disclosure Form to Report Lobbying", which is also
attached, that must be used to disclose lobbying with other than
Federally appropriated funds at the time of application filing.

      Please note that the certification/statement and disclosure
form must be submitted with each application, if required above.
If it is not filed at the time of the application, it must be
submitted before the applicant receives Federal assistance.
This might occur where an application was submitted prior to
December 23, 1989, but is not approved until after that date.
In addition, at the end of each quarter a disclosure form shall be
filed when an event requires disclosure or when previously filed
disclosure information is inaccurate. It is up to the applicant
to determine whether it is to be submitted.

      In mortgage insurance programs, the applicant is the
mortgagee. However, the sponsor/mortgagor is a subrecipient and
is also covered. In multifamily, submissions must be made with
the following:

     1)   Mortgage insurance application, at any stage - HUD-92013
          92013-Hosp, 92013-NHICF or HUD-93201, as appropriate;

     2)   Cost Certification forms - HUD-92330 or FHA-2205A; and

     3)   Request for Final Endorsement of Credit Instrument
          - Form FHA-2023.

      For single family insurance, each application that involves a
mortgage amount that exceeds $150,000 must be accompanied by the
disclosure form. These forms must be signed by the mortgagee and
all mortgagors and must be submitted with the application for firm
commitment for all HUD processed cases; it must be included as
part of the closing package for all Direct Endorsement cases
submitted for insurance. You are reminded that this certification
by the lender and mortgagor is only required for applications that
involve mortgage amounts that exceed $150,000. Generally, these
applications will involve only 3 and 4 unit properties in high
cost areas and most one-to-four unit applications in Hawaii.

HUD Headquarters contacts: Any questions may be addressed to the
appropriate Headquarters program office as follows:

single Family Programs - Morris Carter, (202) 755-6700
Single Family Property Disposition - Jackie Campbell
                                        (202) 755-5740
Multifamily Housing Management - James Tahash, (202) 426-3944
Multifamily Housing Development - Jane Luton, (202) 755-6223
Elderly & Assisted Housing - Larry Goldberger, (202) 755-5720

     A Notice to Field Offices and a Coinsuring Lender Letter on
this matter have also been sent.

                                Sincerely,

                                C. Austin Fitts
                                Assistant Secretary for
                                  Housing-Federal Housing
                                    Commissioner

Enclosures


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                                                     Rules and
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             PART III

             New Restrictions on Lobbying; Interim
             Final Rule


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          Certification for Contracts, Grants, Loans
                  and Cooperative Agreements

     The undersigned certifies, to the best of his or her
knowledge and belief that:

     (1) No Federal appropriated funds have been paid or will be
paid, by or on behalf of the undersigned, to any person for
influencing or attempting to influence an officer or employee of
an agency, a Member of Congress, an officer or employee of
Congress, or an employee of a Member of Congress in connection
with the awarding of any Federal contract, the making of any
Federal grant, the making of any Federal loan, the entering into
of any cooperative agreement, and the extension, continuation,
renewal, amendment or modification of any Federal contract,
grant, loan, or cooperative agreement.

     (2) If any funds other than Federal appropriated funds have
been paid or will be paid to any person for influencing or
attempting to influence an officer or employee of any agency, a
Member of Congress, an officer or employee of Congress, or an
employee of a Member of Congress in connection with this Federal
contract, grant, loan, or cooperative agreement, the undersigned
shall complete and submit Standard Form-LLL, "Disclosure Form to
Report Lobbying," in accordance with its instructions.

     (3) The undersigned shall require that the language of this
certification be included in the award documents for all
subawards at all tiers (including subcontracts, subgrants, and
contracts under grants, loans, and cooperative agreements) and
that all subrecipients shall certify and disclose accordingly.

     This certification is a material representation of fact upon
which reliance was placed when this transaction was made or
entered into. Submission of this certification is a prerequisite
for making or entering into this transaction imposed by section
1352, title 31, U.S. Code. Any person who fails to file the
required certification shall be subject to a civil penalty of not
less than $10,000 and not more than $100,000 for each such
failure.

Executed this __________________ date of _______________, 19 ____.

                          By _______________________________________
                                       (signature)

                             _______________________________________
                                   (typed or printed name)

                             _______________________________________
                                      (title, if any)

Covered Action: ______________________________________________________
             (type and identity of program, project or activity)




       Statement for Loan Guarantees and Loan Insurance

     The undersigned states, to the best of his or her knowledge
and belief, that:

     If any funds have been paid or will be paid to any person
for influencing or attempting to influence an officer or employee
of any agency, a member of Congress, an officer or employee of
Congress, or an employee of a Member of Congress in connection
with this commitment providing for the United States to insure
or guarantee a loan, the undersigned shall complete and submit
Standard Form-LLL, "Disclosure Form to Report Lobbying," in
accordance with its instructions.

     Submission of this statement is a prerequisite for making or
entering into this transaction imposed by section 1352, title 31,
U.S. Code. Any person who fails to file the required statement
shall be subject to a civil penalty of not less than $10,000 and
not more than $100,000 for each such failure.

Executed this ___________________ date of ______________, 19 ____.

                           By
__________________________________________
                                       (signature)


__________________________________________
                                   (typed or printed name)


__________________________________________
                                      (title, if any)

Covered Action:
________________________________________________________
             (type and identity of program, project or activity)




       Statement for Loan Guarantees and Loan Insurance

    The undersigned states, to the best of his or her knowledge
and belief, that:

    If any funds have been paid or will be paid to any person
for influencing or attempting to influence an officer or employee
of any agency, a Member of Congress, an officer or employee of
Congress, or an employee of a Member of Congress in connection
with this commitment providing for the United States to insure
or guarantee a loan, the undersigned shall complete and submit
Standard Form-LLL, "Disclosure Form to Report Lobbying," in
accordance with its instructions.

    Submission of this statement is a prerequisite for making or
entering into this transaction imposed by section 1352, title 31,
U.S. Code. Any person who fails to file the required statement
shall be subject to a civil penalty of not less than $10,000 and
not more than $100,000 for each such failure.

Executed this __________________ date of ______________,19 ____.

                          By ________________________________________
                                      (signature)

                             ________________________________________
                                  (typed or printed name)
                               ________________________________________
                                       (title, if any)

Covered Action: ______________________________________________________
             (type and identity of program, project or activity)




                      DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                                   WASHINGTON, D.C. 20410
                                      May 22, 1990

OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING - FEDERAL HOUSING COMMISSIONER

                                                      Mortgagee Letter
90-16

        TO:   ALL APPROVED MORTGAGEES

        SUBJECT:   Flood Insurance Requirements for FHA Insured Loans

             Because of the recent natural disasters we have received an
        increased number of questions about HUD's requirements for flood
        insurance. In addition, the Federal Emergency Management Agency
        (FEMA) has distributed several publications to clarify its
        procedures and requirements, including new "GUIDELINES" which
were
        published in the Federal Register of July 1, 1989 at pages 29666
        through 29695, and we want to bring HUD policy into conformance
        with that of FEMA.

            By this Mortgagee Letter, we intend to clarify our
       instructions concerning flood insurance requirements for
existing
       and proposed 1 to 4 family units as follows:

              1.   Flood Insurance is required for any building
improvement
                   which contributes to the mortgage value of the
property
                   when that improvement is in a "Special Flood Hazard
                   Area" (SFHA). This requirement does not include
                   unimproved land. For both existing and proposed
                   properties, it is the responsibility of the Mortgagee
                   and Mortgagor to establish the facts necessary to
make
                   this determination.   When the building improvements
are
                   located outside of the SFHA, flood insurance is not
                   required. Mortgagees must comply with FEMA
instructions
                   concerning a building which is in an area mapped as
an
                   SFHA, but which is above the base flood elevation.
The
                   attached information provided by FEMA shows some of
the
                   conditions which may arise, and whether flood
insurance
                   is required.   Please note that in a number of cases,
a
                   Letter of Map Amendment (LOMA) or a Letter of Map
                   Revision (LOMR) may be required. A LOMA amends the
                   currently effective FEMA map and establishes that a
                   property is not located in an SFHA. A LOMR is an
                   official amendment to the currently effective FEMA
map.
                   It is used to change information on the map.    A LOMR
is
                   usually followed by a physical map revision.


       2.   When processing a new subdivision for approval, if all
            or a part of the subdivision is in an SFHA, the HUD
            office must follow the requirements under Executive
            Order 11988, and the affected building sites in the
            subdivision must be raised to be above the base flood
            elevation. For improved areas, EO 11988 does not apply.
            The subdivision or improved area must conform to the
            local government's flood plain management ordinance. A
            LOMR will be required for any affected building site to
            be acceptable for mortgage insurance, and no flood
            insurance is required.

       3.   For the acceptance of subdivisions with VA CRVs/MCRVs
            in accordance with Mortgagee Letters 89-1 and 89-9 which
            are in SFHA's, the HUD office does not need to follow
            the EO 11988 procedure.    The subdivision must conform to
            the local government's floodplain management program.
            Individual homes must be built above the base flood
            elevation. A LOMR will be required and no flood
            insurance is required.

       4.   For all proposed construction, prior to insuring a
            mortgage for a home in an SFHA, a LOMR or LOMA must be
            obtained from FEMA indicating that the building
            improvements are no longer in the SFHA.

     Each case binder relating to a property affected by an SFHA
should contain a copy of the LOMA, or LOMR, or the property must
have flood insurance.

     These criteria represent the minimum requirements of the
Department. Lenders are free to consider requiring flood
insurance in participating communities on the basis of their own
business judgement, even if the building that is the security for
a loan is located outside of an SFHA. HUD does not expect that
this revision will expose the Department or individuals purchasing
homes with FHA insured mortgages to any additional risk.
Mortgagees are advised, and they should advise mortgagors, that
property in any flood hazard area may be damaged by flood and that
flood insurance on properties in those areas is encouraged as low
cost protection against serious loss which is not covered by
homeowners insurance. In flood zones which are not SFHA's (Zones
B,C, and X) a homeowner may now be able to purchase a "preferred
risk" policy.

                              Very sincerely yours,

                              C. Austin Fitts
                              Assistant Secretary for Housing
                                - Federal Housing Commissioner

Attachment

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                      DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                                   WASHINGTON, D.C. 20410

                                        August 24, 1990

OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING - FEDERAL HOUSING COMMISSIONER

                                                      Mortgagee Letter
90-32

        TO:   ALL APPROVED MORTGAGEES

        SUBJECT:   Payment of Multifamily Claims by Issuance of
                      Debentures

              HUD's regulations at 24 CFR Section 207.259(a), as
        incorporated by reference into other program regulations,
        provide that, under many of HUD's multifamily insurance
        programs, the Commissioner may settle insurance claims in
        cash, debentures, or a combination of both, as determined
        at the time of payment. Until now, HUD has, through the
        issuance of Mortgagee Letters, announced in advance its
        intention as to the method of payment.

              Effective immediately, with respect to both current and
        future loans insured under the programs listed below, FHA
        will determine the method of payment at the time of the
        payment, and thus will no longer announce in advance its
        intention as to the method of payment. The determination
        will be based on a comparison of the applicable debenture
        interest rate with the Treasury borrowing rate, and may also
        take into account administrative factors. If HUD has paid a
        partial settlement in cash prior to the date of this
        Mortgagee Letter, or makes a partial settlement in cash
        thereafter, the final settlement will also be made in cash.

              This letter is applicable only to those Multifamily
        insurance programs under which the Commissioner has the
        option to determine the method of payment. Those programs
        are as follows:

        Program                         Regulation

        Section 207                     207.259(a)
      Section   213                    213.251
      Section   232                    232.251
      Section   234                    234.751
      Section   241                    241.261 (Supplemental Loans
                                                  endorsed prior to
                                                  July 15, 1978)
      Section 242                      242.251 (Except as provided in
                                                  242.260



Section 608                  210.251
Section 803                  225.265
Section 810                  227.251
Title X                      205.251
Title XI                     224.251

     This Mortgagee Letter does not apply to mortgages with
respect to which HUD enters into, or has entered into, a
Debentures Lock agreement.

                             Very sincerely yours,

                             Arthur J. Hill
                             Acting Assistant Secretary
                               for Housing-Federal Housing
                               Commissioner




                         U.S. Department of Housing and Urban
Development

                                               Office of Housing

_______________________________________________________________________
____

Special Attention of:                            Notice   H 91-3 (HUD)

All Regional Administrators;                     Issued: 1/15/91
Directors, Office of Regional Housing;
Managers, Categories A, B and C Offices;         Expires: 1/31/92
Field Office Housing Management Division
Directors, Categories A and B Offices;           Cross References:
Loan Management Branch Chiefs; and               Handbook 4350.1,
Chapter 6
Assisted Housing Management Branch Chiefs        Mortgagee Letter 88-22
_______________________________________________________________________
____

Subject:   Field Office Control and Monitoring of Mortgagee
           Physical Inspections of HUD-Insured Projects

     In his memorandum dated April 16, 1990, Secretary Kemp
stated that he was committed to taking whatever steps were
necessary to ensure that both the quality of housing and quality
of life for residents in our insured and assisted housing
projects are upgraded to Departmental standards. The first step
towards achieving this goal will be to undertake a comprehensive
program of inspections of these projects that will reflect the
views of the residents and will focus on improvement of physical
conditions, correcting management problems, and addressing
serious social problems.

     Regulations for HUD mortgage insurance programs require
mortgagees to annually inspect each insured project and to give
HUD and the project owner a report on that inspection. Detailed
mortgagee inspections can be an effective and useful management
tool to assist in detecting and preventing conditions that can be
detrimental to tenant welfare and project conditions, as well as
to stop duplication of effort between mortgagees and HUD, reduce
costs associated with HUD-conducted inspections, and relieve
staff resources for other servicing activities.

     While mortgagees generally conduct their inspections,
prepare the related inspection reports, and send them to the
local HUD Field Offices, unfortunately, some Field Offices have
not established a tracking system to control the receipt of the
reports, monitor compliance, or follow up on noted project
deficiencies.

    Mortgagee Letter 88-22 established standards that all
mortgagees must comply with when conducting annual inspections
and when reporting the results of these inspections, and to put
all mortgagees on notice that the Department will aggressively
monitor and enforce mortgagees' compliance with these annual
inspection requirements.
In those instances where a Field Office feels that a mortgagee's
report cannot be relied on because of the absence of specific
information, it becomes the responsibility of the Field Office to
require mortgagee compliance.

     Based on the foregoing, Field Offices should immediately
establish and implement an effective system for tracking the
receipt and review of mortgagee inspection reports, as well as
follow-up efforts on related project deficiencies. The Field
Offices should evaluate mortgagee compliance with Mortgagee
Letter 88-22 relative to the adequacy of the physical inspections
by performing quality reviews of the mortgagee inspection
process.

     Each Field Office is directed to provide the Office of
Multifamily Housing Management, Attention: James J. Tahash,
Director, Planning and Procedures Division, with a written report
by April 15, 1991 containing the following information:

    1.   The total number of projects within your jurisdiction
         where mortgagees should have provided you with physical
         inspection reports for the calendar year 1990, to date.

    2.   The number of projects within your jurisdiction where
         the mortgagee has provided your office with an
           acceptable physical inspection report for the calendar
           year 1990, to date.

    3.     The number of projects within your jurisdiction where
           the mortgagee has provided your office with a physical
           inspection report for the calendar year 1990, to date,
           but where the report was unacceptable.

    4.     The number of projects within your jurisdiction where
           the mortgagee has not provided your office with the
           required physical inspection report for the calendar
           year 1990, to date.

     Also, please provide a brief statement as to the steps your
office proposes to take during fiscal year 1991 to ensure 100
percent compliance by all mortgagees in their submission of
timely and quality annual physical inspection reports.

                          ______________________________
                          Arthur J. Hill
                           Acting Assistant Secretary for
                           Housing-Federal Housing Commissioner




                U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                            WASHINGTON, D.C. 20410-8000

                        March 20, 1991

OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING-FEDERAL HOUSING COMMISSIONER                Mortgagee Letter
91-17

     TO:    ALL APPROVED MORTGAGEES

     SUBJECT:   Mortgagee Responsibilities Pending Assignment of
                Multifamily Mortgages

          We have been made aware that some mortgagees may not be
     taking appropriate actions to protect the Secretary's interest
     during the period from election to assign until the assignment
     is perfected.

           All mortgagees are hereby reminded that, upon election to
      assign and pending recordation, the mortgagee is required to take
      necessary actions to protect the Secretary's interest. This
      includes seeking and assuming mortgagee-in-possession status in
      case of abandonment, waste of assets or equity skimming.
Mortgagees
      must also continue to bill for and accept all payments until
      the mortgage is assigned in the Secretary's name.

          If the mortgagor should file a petition under the Bankruptcy
     Code, we request that you take whatever actions are necessary to
     protect your interest as first lienholder and to preserve the
       security. Those actions would include filing the appropriate
       documents to assure that your interest is adequately protected.
       Please note that project rents are part of the loan security and
       are denoted as cash collateral under the Code. Therefore, you
       should obtain an Order recognizing your entitlement to the rents
       under the assignment of rents clause and restricting use of the
       rents in accordance with the rules governing cash collateral.
You
       should also be alert to the fact that the mortgagor may not use
       project assets to pay attorney fees for legal service in
       connection with any aspect of the bankruptcy action without HUD
       approval.

            This applies to elections due to a default and those made in
       accordance with Section 221(g)(4).

            If you have questions regarding this memorandum, please
       telephone Kenneth F. Hannnon at (202) 708-0547.

                                            Sincerely,

                                            Arthur J. Hill
                                            Acting Assistant Secretary
                                              for Housing-Federal Housing
                                              Commissioner




                   U. S. Department of Housing and Urban Development
                               Washington, D.C. 20410-8000

                                  June 18, 1991

OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING-FEDERAL HOUSING COMMISSIONER

                                                      Mortgagee Letter 91 -
29

      MEMORANDUM FOR:   All HUD-APPROVED MORTGAGEES

      SUBJECT:   Auction of Section 221(g)(4) Multifamily Mortgages

           The Department has received approval from the Office of
      Management and Budget to collect the information required to
      auction Section 221(g)(4) mortgages. Section 221(g)(4) of the
      National Housing Act provides that mortgagees with mortgages
      insured pursuant to a commitment issued under Section 221 prior
      to November 30, 1983, may assign to HUD any such mortgage in the
      twenty-first year following the date of final endorsement,
      provided that the mortgage is not in default. Section 336 of the
      Cranston-Gonzalez National Affordable Housing Act and Section
      2201 of the Omnibus Budget Reconciliation Act of 1990 provide
      that, when a mortgagee elects to assign a mortgage to HUD under
      Section 221(g)(4), the Secretary shall, in lieu of accepting the
      assignment, arrange an auction sale of the mortgage and pay the
   purchaser monthly interest enhancement payments.

        HUD will arrange auction sales for all Section 221(g)(4)
   mortgages for which a notice of election to assign was submitted
   after December 5, 1990. Mortgagees who submitted notices on or
   before December 5, 1990, and for which no assignment was
   recorded, may choose to participate in the first auction or to
   proceed to assignment. All mortgagees who have submitted notices
   of election to assign are being notified that they should submit
   the information on the attached Project Data Summary Sheet format
   for each mortgage to be included in the first auction. It is not
   necessary to use the attached form as long as the requested
   information is provided. In accordance with the statute, an
   auction will be held between two and six months after HUD
   receives the requested information.

         In the future, all mortgagees who elect to assign a mortgage
   under Section 221(g)(4) should submit their elections to:

             Audrey Hinton, Acting Director,
             Office of Multifamily Housing Preservation
               and Property Disposition
             U.S. Dept. of Housing and Urban Development
             451 - Seventh Street, SW
             Washington, DC 20410


     The election should be accompanied by a certified statement
that the mortgage was current as of the twentieth anniversary
date, a copy of the Deed of Trust Note, including the endorsement
panel, and the information requested on the Project Data Summary
Sheet format. About three times each year, the Department will
schedule a Project Mortgage Auction. For each auction, it will
publish an Announcement which will contain the date and
procedures for the auction and will describe the mortgages
offered for sale. A copy of the Announcement will be sent to
every HUD-approved mortgagee.

     From 60 days after the date of the election to assign until
sale of the mortgage (or recordation of assignment in the event
there is no sale), HUD will pay the selling mortgagee a stipend
of the difference between the note rate on the mortgage and the
debenture rate on the date of the election to assign applied to
the declining principal balance.

     Until the sale of the mortgage has been completed, the
mortgagee of record will continue to be responsible for
protecting the Secretary's interest in the mortgage. The
mortgagee must continue to maintain all escrow accounts, pay
taxes and insurance, and bill for, and accept, all payments from
the mortgagor.

                             Very sincerely yours,

                             Arthur J. Hill
                             Assistant Secretary for
                              Housing-Federal Housing Commissioner
Attachment


                              FORMAT FOR
                      PROJECT SUMMARY DATA SHEET
                     Part A - General Information

1.    Project Name
________________________________________________________

2.    Project Address
_____________________________________________________

3.    FHA Project Number
__________________________________________________

4.    HUD Field Office with jurisdiction over Project
_____________________


_____________________________________________________________________

5.    Mortgagee
___________________________________________________________

      Address
_____________________________________________________________

      (Contact person and phone number)
___________________________________


_____________________________________________________________________

6.    Servicer
____________________________________________________________

      Address
_____________________________________________________________

      (Contact person and phone number
____________________________________


_____________________________________________________________________

7.    Management Agent
____________________________________________________

      Address
_____________________________________________________________

      (Contact person and phone number
____________________________________
_____________________________________________________________________



                     PART B - MORTGAGE INFORMATION

1.   Section of National Housing Act:

         Section 221(d)(3) BMIR___________
         Section 221(d)(3) MR_____________
         Section 221(d)(4)________________

2.   Original Mortgage Amount:
$________________________________________

3.   Mortgage Balance (on the date of the election to assign) as
     of______-_____-______: $________________________

4.   Interest Rate: ________%

5.   Monthly Payment to P & I:
$_______________________________________

6.   Start of Amortization:    _____-_______

7.   Mortgage Maturity Date:    _____-_______

8.   Date of Final Endorsement:   _____-_______

9.   Annual Servicing Fee:

              $______________________

              ________________________% of principal balance


                         PART C - MORTGAGOR INFORMATION

1.   Mortgagor Entity:

          Name of
Entity________________________________________________

          Name of
Principal_____________________________________________


Title_________________________________________________________


Address_______________________________________________________


______________________________________________________________
______________________________________________________________

2.   Type of Owner:   Check all that apply

         Nonprofit_______________            Individual_______________

         Limited Dividend________            Partnership______________

         Profit-motivated________            Corporation______________

         Cooperative_____________            Other____________________



           U. S. Department of Housing and Urban Development
                       Washington, D,C. 20410-8000
                             July 3, 1991

OFFICE OF THE ASSISTANT SECRETARY
FOR HOUSING-FEDERAL HOUSING COMMISSIONER             Mortgagee Letter
91-30

     ALL APPROVED MORTGAGEES

     SUBJECT:   Debenture Interest Rates

          Notice has been published in the Federal Register that the
     debenture interest rate will be 8-1/2 percent for the next six-
month
     period. The rate applies to all home and project mortgages
     and loans under the National Housing Act, as amended, except
     Section 221(g)(4), committed or endorsed on or after July 1, 1991.

          Debentures bear interest at the rate in effect at the date of
     commitment or endorsement for insurance, whichever is higher.
     Rates applicable to mortgages committed or endorsed in prior
     periods are as follows:


_____________________________________________________________________
     Effective interest rate               on or after       prior to
     9 1/2 .............................. Jan. 1, 1980     July 1,
1980.
     9 7/8 .............................. July 1, 1980     Jan. 1,
1981.
     11 3/4 ............................. Jan. 1, 1981     July 1,
1981.
     12 7/8 ............................. July 1, 1981     Jan. 1,
1982.
     12 3/4 ............................. Jan. 1, 1982     Jan. 1,
1983.
     10-1/4 ............................. Jan. 1, 1983     July 1,
1983.
     10 3/8 ............................. July 1, 1983     Jan. 1,
1984.
     11 1/2 .............................   Jan. 1, 1984       July 1,
1984.
     13 3/8 .............................   July 1, 1984       Jan. 1,
1985.
     11 5/8 .............................   Jan. 1, 1985       July 1,
1985.
     11 1/8 .............................   July 1, 1985       Jan. 1,
1986.
     10 1/4 .............................   Jan. 1, 1986       July 1,
1986.
     8 1/4 .............................    July 1, 1986       Jan. 1,
1987.
     8 ..................................   Jan. 1, 1987       July 1,
1987.
     9 ..................................   July 1, 1987       Jan. 1,
1988.
     9 1/8 ..............................   Jan. 1, 1988       July 1,
1988.
     9 3/8 ..............................   July 1, 1988       Jan. 1,
1989.
     9 1/4...............................   Jan. 1, 1989       July 1,
1989.
     9 ..................................   July   1,   1989   Jan.   1,   1990
     8 1/8...............................   Jan.   1,   1990   July   1,   1990
     9 ..................................   July   1,   1990   Jan.   1,   1991
     8 3/4 ..............................   Jan.   1,   1991   July   1,   1991
     8 1/2 ..............................   July   1,   1991

_____________________________________________________________________

     Notice has also been published in the Federal Register that
the debenture interest rate will be 8-1/8 percent for mortgages
assigned to HUD under the provisions of Section 221(g)(4) for the
six-month period beginning July 1, 1991.

     Claims for insurance benefits that are settled in cash in lieu
of debentures will include an interest allowance, comparable to the
interest at the debenture rate, on the amount of the settlement.

     If you have any questions, please call Fred McLaughlin at
(202) 708-4325.

                             Sincerely yours,

                             Arthur J. Hill
                             Assistant Secretary for
                               Housing-Federal Housing Commissioner




            U. S. Department of Housing and Urban Development
                        Washington, D.C. 20410-8000

                             July 22, 1991

OFFICE OF THE ASSISTANT SECRETARY
FOR HOUSING-FEDERAL HOUSING COMMISSIONER

    MORTGAGEE LETTER                                      LETTER NO.
91-31

   SUBJECT:   Delinquent Federal Debt

        In lieu of the requirements promulgated by the Office of
   Management and Budget many lenders appear to be treating
   delinquent Federal debt the same as delinquent private debt in
   determining a loan applicant's credit worthiness.
   Private sector lenders have been submitting applications for
   mortgage insurance, after making a determination that the size of
   debt delinquency does not warrant rejection, without making any
   distinction as to whether or not the debt is owed to the Federal
   Government.

        HUD's grant, direct, insured and guaranteed loan programs
   must comply with the provisions of the Office of Management and
   Budget (OMB) Circular A-129, "MANAGING FEDERAL CREDIT PROGRAMS,"
   issued November 25, 1988. This Circular prescribes policies and
   procedures for managing Federal credit programs and for
   collecting loans and other receivables. It states in part that
   we shall:

        Suspend processing applications for Federal direct loans or
        require a private lender to suspend processing of loan
        guarantee applications when an applicant is found to be
        delinquent on a Federal debt. The applicant must provide
        evidence that the delinquency has been resolved. Otherwise,
        the credit granting agency must request validation from the
        Federal agency owed the debt that the debt is no longer
        delinquent.

        Therefore, HUD will not process applications for mortgage
   insurance if an applicant (Borrower, sponsor, mortgagor, general
   contractor, including all principals of the entities listed) has
   delinquent Federal debts. Examples of Federal debts are direct
   loans, HUD-insured loans, student loans, Small Business
   Administration loans, or judgment liens against property for a
   debt owed the Federal Government, etc.


     The Department expects a lender to prescreen proposed
applications by verifying the information presented in an
application against information contained in the applicant's
credit report(s). The lender must closely review credit reports,
financial statements and make reasonable inquiries to determine
if an applicant is in default on any Federal debt. This
procedure applies to both individuals and commercial
organizations. Any applicant with a prior Federal default or
claim must submit to the lender an explanation of the extenuating
circumstances surrounding the delinquent Federal debt.

     The lender must include as part of the required application
exhibits submitted to HUD:
    A.    The applicant's detailed explanation of how it incurred
          the delinquent Federal debt.

    B.    A letterhead advice from the affected agency, signed by
          an officer, stating that the delinquent debt is current
          or satisfactory arrangements for repayment have been
          made.

    C.    The lender's reason(s) for recommendation of the
          applicant, which may be included in the work sheets and
          remarks sections of the processing documents or a
          covering letter with the submission.

     HUD will review the submission to assure that only
applicants who have resolved or made satisfactory arrangements to
repay their Federal debt are considered for additional awards or
guarantees while applicants who have unresolved delinquent
Federal debt will not be accepted for processing.

                          Very sincerely yours,

                          Arthur J. Hill
                          Assistant Secretary
                            Housing-Federal Housing Commissioner




             U. S. Department of Housing and Urban Development
                        Washington, D.C. 20410-8000

                              July 23, 1991

OFFICE OF THE ASSISTANT SECRETARY
FOR HOUSING-FEDERAL HOUSING COMMISSIONER              Mortgage Letter
91-34

    TO:        ALL APPROVED MORTGAGEES

    SUBJECT:   Change in Maximum Interest Rates

          The Housing and Urban Recovery Act of 1983 established
     Negotiated Interest Rates for all single-family and multifamily
     programs, except for Section 235 and Section 232 (loans to finance
     purchase and installation of fire safety equipment). However,
     Section 429(e)(2) of the Housing and Community Development Act of
     1987 (Public Law 100-242, approved February 5, 1988) amended the
     National Housing Act to provide that interest on fire safety
     equipment loans under Section 232(i) of the Act will be "at such
     rate as may be agreed upon by the mortgagor and the mortgagee."
     Accordingly, these loans, like most other National Housing
     Act-authorized insured loans, now have their interest rates
determined
     by negotiation. Accordingly, this announcement of a change in
     interest rate ceilings for FHA-insured mortgages is limited to the
     Section 235 Program.
           HUD regulations have been changed to increase the maximum
rate
       of interest on Section 235 loans from 9.00 to 9.50 percent.

          In Mortgagee Letter 84-21 on the Section 235 Program, it
     states that reprocessing will be required by HUD on any case in
     which a mortgagee wishes to close at an interest rate higher than
     the rate shown on the firm commitment. To avoid unnecessary
     processing, HUD will only accept requests for reprocessing where
     a clear final inspection has been obtained. Mortgagees must
submit
     this information with their request to have their case reprocessed
     at the higher rate.

           This change is effective June 17, 1991.

                                    Sincerely,

                                    Arthur J. Hill
                                    Assistant Secretary for
                                      Housing-Federal Housing
                                      Commissioner



                        U. S. Department of Housing and Urban
Development
                                   Washington, D.C. 20410-8000

                                     August 12, 1991

OFFICE OF THE ASSISTANT SECRETARY
FOR HOUSING-FEDERAL HOUSING COMMISSIONER

                                                       Mortgagee Letter
91-37

TO:    ALL APPROVED MORTGAGEES

SUBJECT:   Civil Money Penalties Against Mortgagees -- Implementation
           of the HUD Reform Act

      The purpose of this Mortgagee Letter is to provide information to
all
approved mortgagees on the new regulations implementing Section 107 of
the
HUD Reform Act of 1989 concerning civil money penalties. A copy of the
regulations is enclosed. These regulations became effective on June
21,
1991.

Background

      The HUD Reform Act of 1989 was signed into law on December 15,
1989.
Section 107 of the Reform Act authorizes the Department to impose civil
money penalties on mortgagees that violate the Department's
requirements.
The Final Rule implementing Section 107 was published in the Federal
Register on May 22, 1991 and will appear in the Code of Federal
Regulations
at 24 CFR Part 30.

      The regulations provide that the Department may impose a civil
money
penalty whenever an approved mortgagee knowingly and materially
violates
relevant program statutes, regulations or handbook requirements. The
Reform Act and the implementing regulations provide for increased
program
enforcement efforts on the part of the Department. A civil money
penalty
may be imposed in addition to other administrative sanctions or any
other
civil or criminal penalty.

Examples of violations for which civil money penalties may be imposed

      A civil money penalty may be imposed by the Department against a
mortgagee for knowing and material program violations that include:

    o    Transfer of an insured mortgage to a mortgagee not
         approved by the Department.

    o    Using escrow funds for any purpose other than that for
         which they were received.


    o    Falsely certifying to the Department or submitting to
         the Department a false certification by another
         person.

    o    Failure to comply with mortgage servicing
         requirements.

    o    Submitting false information to the Department in
         connection with any insured mortgage transaction.

    o    Hiring or employing an individual such as an officer,
         director, principal or employee whose duties involve
         programs administered by the Department, while that
         individual is under suspension, debarment or a Limited
         Denial of Participation (LDP) by the Department.

    o    Failing to comply with any agreement, certification or
         condition set forth, or applicable to, the application
         of a mortgagee for approval by the Department.

    o    Failure by a nonsupervised mortgagee to segregate
         escrow funds received from mortgagors and to deposit
         such funds in a special account with a federally
         insured depository institution.
    o    Hiring or retaining an agent whose duties involve
         programs administered by the Department while such
         agent is under suspension, debarment or a Limited
         Denial of Participation (LDP) by the Department.

    o    Failure to remit, or timely remit mortgage insurance
         premiums, late charges or interest penalties.

    o    Failure to timely submit documents that are complete
         and accurate in connection with a conveyance of
         property or a claim for insurance benefits.


    o    Failure to comply with the provisions of the Real
         Estate Settlement Procedures Act (RESPA).

Amount of Penalty

      The maximum amounts of penalties, as determined by the
Department,
may not exceed $5,000 for each violation by a mortgagee, except that
the
maximum penalty for all violations by any mortgagee during any one-year
period will not exceed $1 million. Each violation constitutes a
separate
violation with respect to each mortgage, subject to the maximum penalty
of
$1 million.

      Although the Final Rule became effective on June 21, 1991, the
Department may impose civil money penalties for violations occurring
anytime after the date of enactment of the HUD Reform Act, which was
December 15, 1989.

Factors in determining amount of penalty

      In determining the amount of a penalty, the Department will
consider
the gravity of the offense, any history of prior offenses (including
those
before enactment of the Reform Act), ability to pay the penalty, injury
to
the public, benefits received, deterrence of future violations, and the
degree of the violator's culpability.

Housing Civil Penalties Panel (HCPP) and Mortgagee Review Board

      There is established within the Federal Housing Administration
the
Housing Civil Penalties Panel (HCPP). The HCPP is responsible for
reviewing recommendations for, and proposing the imposition of civil
money
penalties against mortgagees. The HCPP is composed of the following
members, or their designees: Assistant Secretary for Housing-Federal
Housing Commissioner, Chairman; Deputy Assistant Secretary for
Operations;
Deputy Assistant Secretary for Multifamily Housing Programs; and the
Deputy
Assistant Secretary for Single Family Housing. The HCPP also includes
the
Assistant Secretary for Fair Housing and Equal Opportunity, or designee
(in
cases involving violations of the Department's nondiscrimination
requirements). A designee of the General Counsel serves in a non-
voting
advisory capacity to the HCPP.

      The Department's Mortgagee Review Board is also authorized to
impose
civil money penalties against mortgagees. This authority is in
addition to
the Board's other functions as described in 24 CFR Part 25.

      The HCPP and the Mortgagee Review Board will consider all facts
and
responses by mortgagees in determining whether to propose a civil money
penalty.


                                      4

Notice of intent to seek a civil money penalty

      When the Department intends to seek a civil money penalty, it
will
issue a written notice to the mortgagee. This notice will inform the
mortgagee that the Department is considering the imposition of a civil
money penalty, state the specific violations that have been alleged,
state
the amount of the civil money penalty that will be recommended, and
provide
an opportunity for the mortgagee to submit a written response within 30
days of receipt of the notice. The failure to respond to this notice
will
result in the matter being considered by the HCPP or the Mortgagee
Review
Board without any further notice.

Settlements

      A mortgagee may at any time enter into a Settlement Agreement
with
the Department before or after a matter is referred to the HCPP or
Mortgagee Review Board for consideration of civil money penalties.

Opportunity for a Hearing

      A civil money penalty is effective after a mortgagee has been
given
an opportunity for a hearing before an Administrative Law Judge. If a
hearing is not requested, the Administrative Law Judge will issue a
default
judgment. Unless a mortgagee shows that extraordinary circumstances
prevented the hearing request, the imposition of the civil money
penalty
becomes a final and unappealable determination by the HCPP or the
Mortgagee
Review Board.

      Mortgagees are important partners in the Department's programs.
I
ask you to increase your diligence in conducting your lending and loan
servicing activities and take steps to tighten your monitoring and
quality
control responsibilities.

      If you have any questions concerning this Mortgagee Letter,
please
contact William Heyman, Director, Office of Lender Activities and Land
Sales Registration at (202) 708-1824.

                                    Sincerely,

                                    Arthur J. Hill
                                    Assistant Secretary for
                                      Housing-Federal Housing
Commissioner

Enclosure



                    U. S. Department of Housing and Urban Development
                              Washington, D.C. 20410-8000

                                September 6, 1991

OFFICE OF THE ASSISTANT SECRETARY
FOR HOUSING-FEDERAL HOUSING COMMISSIONER

                                                    Mortgagee Letter
91- 42

   TO:   ALL APPROVED MORTGAGEES

   SUBJECT:    Availability of Flood Insurance Brochures

         The Federal insurance Administration recently developed a
   new brochure, titled, Nothing Could Dampen the Joy of Home
   Ownership. Or Could it? (CSC number 593-8005, L-186, 4/91).
   This brochure was created in response to requests from lenders
   for a hand-out that they could give to borrowers to help explain
   the mandatory flood insurance purchase requirements and the
   benefits of flood insurance.

         Supplies of the brochure are available free of charge at the
   following address:

            National Flood Insurance Program
            PO Box 499
         Lanham, MD   20706-0499
         Attention:   Public Affairs Office

         I encourage you to order a supply of these brochures
   immediately to provide to your loan applicants.

                                 Very sincerely yours,

                                 Arthur J. Hill
                                 Assistant Secretary for Housing
                                    - Federal Housing Commissioner


   Federal Register/Vol. 56, No. 99/ Wednesday, May 22, 1991/
                                                     Rules and
Regulations

          PART II

          Department of Housing and Urban Development

          Office of the Secretary

          24 CFR Part 30

          Civil Money Penalties, Final Rule


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                                                     Rules and
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                                                     Rules and
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                                                     Rules and
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4350.4
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  References:

          Hbk. 2000.3, Office of Inspector General Activities

          Hbk. 4010.1, Definitions, Policy Statements and General
                           Rulings

          Hbk. 4060.1, Mortgagee Approval Handbook

          Hbk. 4060.2, Mortgagee Review Board

          Hbk. 4060.3, Field Office Guide for Mortgagee Monitoring

          Hbk. 4065.1, Previous Participation Handbook

          Hbk. 4110.2, Mortgagees' Guide Home Mortgage Fiscal
                         Instructions

          Hbk. 4350.1, Insured Project Servicing Handbook

          Hbk. 4370.1, Reviewing Annual and Monthly Financial
                         Reports

          Hbk. 4370.2, Financial Operations and Accounting
                         Procedures for Insured Multifamily
                         Projects

          Hbk. 4372.1, Audit Guide for use by Independent Public
                         Accountants for Audit of Mortgagors having
                         HUD-Insured or Secretary held Multifamily
                         Mortgages

          Hbk. 4561.1, Coinsurance for Mortgage Lenders (Section
                         221(d))

          Hbk. 4561.2, Management Servicing and Disposition
                         Requirements for Projects with 221(d)
                         Coinsured Loans

          Hbk. 4566.1, Coinsurance for Private Lenders - Section
                         223(f)

          Hbk. 4566.2, Management Servicing and Disposition
                         Requirements for Projects with 223(f)
                         Coinsured Loans


List of forms mentioned in this Handbook:
Form No.        Form Name                                     Appendix No.
________        _________                                     ____________

HUD-434          Statement of Taxes                           5-D
HUD-2537      Mortgagee's Application for                  5-C
              Partial Settlement (M/F Mtg.)

HUD 2741      Instructions for Applications for            5-A
              Insurance Benefits (M/F Mortgages)

HUD 2742      Fiscal Data in Support of Claim              5-E
              for Insurance Benefits (M/F Mtg.)

HUD-2744A     Allocation of Mortgagee Receipts             5-F
              and Disbursements, Schedule A

HUD-2744B     Mortgagee's Report of Project                5-G
              Collections, Schedule B

HUD-2744C     Mortgagee's Report of Project                5-H
              Disbursements, Schedule C

HUD-2744D     Other Disbursements by Mortgagee             5-I

HUD-2744E     Mortgagee Report of Special                  5-I
              Escrow, Schedule E

HUD-2747      Application for Insurance                    5-B
              Benefits (M/F Mortgage)

HUD-9250      Reserve Fund for Replacements                N/A
              Authorization

HUD-9807      Request for Termination of                   3
              Multifamily Mortgage Insurance

HUD-9822      Physical Inspection Report and               1
              Estimate of Repair Costs

HUD-9834      Management Review of Multifamily             N/A
              Projects

HUD-92080     Mortgage Record Change                       4

HUD-92266     Application for Transfer of                  N/A
              Physical Assets

HUD-92426     Notice of Default Status Report              2
              on Multifamily Housing Projects



                            INSURED MULTIFAMILY MORTGAGEE
                            SERVICING AND FIELD OFFICE MONITORING
HANDBOOK

                                       TABLE OF CONTENTS

Paragraph                                                        Page

       Chapter 1. PRACTICES, PROCEDURES, AND RESPONSIBILITIES
                                         Section 1.   Introduction

1-1    General                                                    1-1
1-2    Definitions                                                1-1
1-3    Purposes of Servicing Loans                                1-5
1-4    Compensation                                               1-5
1-5    Additional Revenue                                         1-6
1-6    The Housing Team                                           1-6
1-7    HUD Subsidies                                              1-6
1-8    HUD Assistance                                             1-7
1-9    HUD/Mortgagor Relationships                                1-7
1-10   Mortgagees' Control of Mortgagors                          1-8
1-11   Mortgagees' Obligations to Mortgagors                      1-9
1-12   Interdependent Relationships                               1-9
1-13   Ultimate Servicing Responsibility                          1-10

                                         Section 2.   Applicability

1-14   Sections of the Housing Act                                1-12
1-15   Applicability                                              1-12

Section 3.   Mortgage Servicing, General Guidance

1-16   Statement of Mortgage Servicing Standards                  1-13
1-17   Regulatory Authority                                       1-13

Section 4.   Mortgagee Monitoring, General Procedures

1-18   Statement of Monitoring Procedures                         1-14
1-19   Mortgagee Reviews are Mandatory                            1-14
1-20   Remote Reviews by HUD Field Offices                        1-15
1-21   HUD Headquarters Actions                                   1-16
1-22   Authority for Imposing Sanctions                           1-16

                                v                                 6/96
4350.4 CHG-7

CHAPTER 2. LOAN ADMINISTRATION:
        RESPONSIBILITIES OF MORTGAGE SERVICING

       Section 1.   Introduction

2-1    Objectives and Goals                                       2-1
2-2    Maximizing Revenue                                         2-1
2-3    Reducing Risk                                              2-1
2-4    Minimizing Costs                                           2-2

       Section 2.   Fiduciary Responsibilities

2-5    Definition of "Fiduciary"                                  2-3
2-6    Fiduciary Relationships                                    2-3
2-7    Efforts of Servicing Mortgagees                            2-5

       Section 3.   Quality Control Plans and Credit Management

2-8    Quality Control Plans and Credit Management                2-6
2-9     Instructions for Quality Control Plans                  2-6
2-10    Principles of Credit Management                         2-6

        Section 4.   Routine Servicing

2-11    Eight Basic Servicing Functions                         2-10
2-12    Servicing Loan Payments                                 2-10
2-13    Servicing Escrow Payments                               2-13
2-14    Escrow Analysis                                         2-15
2-15    Servicing Taxes                                         2-16
2-16    Servicing Insurance Requirements                        2-16
2-17    Servicing Contract Changes                              2-17

        Section 5.   Servicing HUD Requirements

2-18    Mortgagees Agree to HUD Requirements                    2-19
2-19    Annual Physical Inspections                             2-19
2-20    Inspection Requirements                                 2-19
2-21    Investment of Funds                                     2-22
2-22    Investing Money in Residual Receipts Funds
          for Certain Section 8 Projects                        2-23
2-23    Investing Residual Receipts of All Other Projects       2-25
2-24    Investing Money in the Reserve Fund for
          Replacements for Certain Section 8 Projects           2-25
2-25    Investing Reserve Funds for Replacements of
          All Other Projects                                    2-26
2-26    Fee Structures for Investments                          2-26
2-27    Liquidity                                               2-26
2-28    Timeliness                                              2-27

6/96                                                    vi
                                                                4350.4
CHG-7

2-29    Minimum Amounts of Investments                          2-27
2-30    Reporting to HUD, General                               2-27
2-31    Mortgagees Must Keep HUD Informed                       2-28

                                Section 6.   Servicing Delinquent
Accounts

2-32    General                                                 2-31
2-33    Payment History                                         2-31
2-34    Costs of Delinquent Accounts                            2-32
2-35    Causes of Delinquencies                                 2-32
2-36    Prompt Action                                           2-33
2-37    Notify HUD of Delinquencies                             2-33
2-38    Notify Investor                                         2-35
2-39    Occasional Delinquencies                                2-35
2-40    Chronic Delinquencies                                   2-35
2-41    Occasional Defaults                                     2-36
2-42    Reinstatement                                           2-37
2-43    Chronic Defaults                                        2-38
2-44    Mortgagee's Election Decision                           2-39

                                Section 7.   Claims
2-45   Initiating Insurance Claims, Insured Mortgages            2-42
2-46   Claims for Co-insured Mortgages (Reserved)                2-43

CHAPTER 3.   MORTGAGEE RESPONSIBILITIES, CO-INSURED MORTGAGES
                                         (RESERVED)

                                CHAPTER 4.   HUD RESPONSIBILITIES

                                Section 1.   Fiduciary

4-1    Actions by HUD                                            4-1
4-2    Contractual Obligations                                   4-1
4-3    HUD Reviews Mortgagees                                    4-1
4-4    Contents of Mortgagee's Certificate                       4-2
4-5    HUD Responsibility for Enforcement of Regulations         4-4
4-6    Other HUD Responsibilities                                4-4

                                Section 2.   Claims Processing

4-7    General                                                   4-5
4-8    Background                                                4-5
4-9    Actions Upon Mortgagee's Election                         4-6
4-10   Claims Settlement: Cash/Debentures                        4-6
4-11   Minimizing Costs                                          4-7
4-12   Fiscal Data Required                                      4-7
4-13   Description of Insurance Benefits                         4-7
4-14   Miscellaneous Claims                                      4-8

                                vii                              6/96
4350.4 CHG-7

       Chapter 5.   MORTGAGEE REMOTE MONITORING PROCEDURES

5-1    Seven Objectives of Monitoring                            5-1
5-2    History of Monitoring                                     5-1
5-3    Role of Field Offices in Review Processes                 5-2
5-4    Field Office Responsibility                               5-3
5-5    Field Office Records                                      5-3
5-6    Contents of Field Office Files                            5-5
5-7    Primary Purpose of Field Office Reviews                   5-6
5-8    Secondary Purpose of Field Office Reviews                 5-6
5-9    Field Office Criteria for Evaluating Mortgagees           5-6
5-10   Phases for Implementation                                 5-7
5-11   Evaluating Physical Inspections                           5-7
5-12   Evaluating Escrow Procedures                              5-11
5-13   Evaluating Property Insurance                             5-14
5-14   Evaluating Collection Efforts                             5-15
5-15   Evaluating Default Reporting                              5-16
5-16   Identify Strengths and Weaknesses                         5-17
5-17   Experience in Problem Areas                               5-17
5-18   Develop Solutions at Local Level                          5-17
5-19   Responsibilities of All Employees                         5-19
5-20   Types and Timing of Referrals                             5-20
5-21   Quarterly Summary Report, Dates Due                       5-21
5-22   Quarterly Summary Report, Contents                        5-21
5-23   Distribution of Recommendations                           5-23
5-24   Null Reports                                              5-23
5-25    Activities of Regional Offices                             5-23
5-26    Search for Patterns                                        5-24
5-27    Review Field Offices                                       5-25
5-28    Foster Training                                            5-25
5-29    Provide Assistance                                         5-25
5-30    Responsibility of the Office of Lender Activities          5-25
5-31    Role of OLA                                                5-25

                           Chapter 6.   ENFORCEMENT

                           Section 1.   General

6-1     Statutory Authority                                        6-1
6-2     Background                                                 6-1
6-3     Previously Available Sanctions                             6-1
6-4     Currently Available Sanctions                              6-3
6-5     Amounts of Civil Money Penalties                           6-3
6-6     Recommending Sanctions, General                            6-3
6-7     Submission of Recommendations                              6-3

6/96                                    viii
                                                                   4350.4
CHG-7

                           Section 2.   HUD Field Office Actions

6-8     Coordination of Activities and Authority                   6-4
6-9     Distribution of Recommendations                            6-4
6-10    Simultaneous Recommendations                               6-4

                          Section 3.    HUD Headquarters Actions

6-11    Office of Lender Activities Examines
          Recommendations                                          6-6
6-12    Coordination of Information                                6-6
6-13    Dissemination of Information to Field Offices              6-6

LIST OF APPENDICES

Appendix   1    HUD-9822, Physical Inspection Report
               Form
Appendix   2    HUD-92426, Multifamily Default Status Report
               Form
Appendix   3    HUD-9807 (RESERVED)
               Form
Appendix   4    HUD-92080, Request for Termination of Multifamily
               Form
                Mortgage Insurance
Appendix 5 Fiscal Data Package, Sample Forms:

A.  HUD-2741, Instructions for Applications for Insurance Benefits
        (Multifamily Mortgages)
B. HUD-2747, Application for Insurance Benefits (Multifamily Mortgage)
C. HUD-2537, Mortgagee's Application for Partial Settlement
        (Multifamily Mortgage)
D. HUD-434, Statement of Taxes
E. HUD-2742, Fiscal Data in Support of Claim for Insurance Benefits
        (Multifamily Mortgage)
F. HUD-2744A, Allocation of Mortgagee Receipts and Disbursements,
Schedule A
G. HUD-2744B. Mortgagee's Report of Project Collections, Schedule B
H.   HUD-2744C, Mortgagee's Report of Project Disbursements, Schedule C
I.   HUD-2744D, Other Disbursements by Mortgagee
J.   HUD-2744E, Mortgagee Report of Special Escrows, Schedule E

Appendix 6   Civil Money Penalties, Final Rule: 24 CFR Part 30
Appendix 7   Selected Mortgagee Letters

TABLES

Table 1 Mortgage Insurance Programs                              1-12
Table 2 Default Dates and Related Deadlines                      2-31

				
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