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17.2 REQUIRED SERVICING ACTIONS [7 CFR 3555.252]
In addition to collecting regularly scheduled payments, servicers are also responsible for a wide variety of servicing activities including, but not limited to, the following actions.
A. Ensuring Payment of Loan
Servicers should have a system of record to record loans, monitor payment activity, and the history of borrower accounts. The USDA approved servicer is responsible for monitoring activities completed by any third-party providers.
B. Handling Late Payments and Fees
Servicers may assess late payment charges to a borrower’s account when appropriate; however, these charges will not be covered by the loan guarantee. The late payment charge must not exceed a rate that is reasonable and customary, as governed by state law, the percentage of the payment due as prescribed by HUD, or the percentage of payment as prescribed by Fannie Mae or Freddie Mac.
C. Ensuring Payment of Taxes and Insurance
Servicers must have adequate internal control processes to ensure that real estate taxes, assessments, and flood and hazard insurance premiums are paid as required for all property securing a guaranteed loan. Escrow funds may be used only for the purpose for which they were collected. Escrow accounts for all guaranteed loans must be administered in accordance with all applicable regulations and must be insured by the FDIC or the NCUA insurance fund. Rural Development will not include any taxes or insurance amounts that accrued prior to due date of last paid installment in any potential loss claim.
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D. Maintaining Hazard and Flood Insurance
Until the loan is paid in full, servicers must ensure that borrowers continuously maintain hazard and, if applicable, flood insurance in an amount sufficient to protect the property securing the guaranteed loan. Servicers should adopt accepted industry standards for hazard and flood insurance as noted in Chapter 16 of this Handbook.
x Servicers must administer hazard insurance claims involving property damage in
an expeditious manner. All payments for insured losses must be applied to the restoration of the security or to the loan balance.
x Insurance claims for structural damage may be paid directly to the homeowner to
advance funds to contractors, provided all the following conditions are met:
o The mortgage is current;
o The borrower’s payment history does not show delinquencies of two
payments or more;
o The property is occupied by the borrower;
o The released funds may not exceed $20,000.00; and
x The borrower must execute an affidavit in which the borrower expressly
agrees to apply the released funds promptly to repair or reconstruct the residence.
x For insurance claims that do not meet the criteria required above, servicers must
supervise the insurance funds if a loss to the insured property occurs. All repairs and replacements using the insurance proceeds must be planned, performed, and inspected in accordance with Agency construction requirements and procedures
x Chapter 12 of this Handbook describes policies for obtaining plans, specifications,
and completing construction inspections involving repairs. See Chapter 18 of this Handbook for additional information regarding insurance claims involving property damage.
x In the case where the borrower cannot demonstrate adequate hazard insurance, the
servicer can place a policy with coverage in accordance with Chapter 16 of this Handbook.
E. Obtaining Final Payments
The servicer must not satisfy a borrower’s account and release the security instruments until full payment of all amounts owed including unpaid principal and
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interest, protective advances, overpayment of interest assistance, shared equity, and mortgage recovery advances have been received and verified. For those borrowers who have received interest assistance and/or a mortgage recovery advance (MRA) (whether secured or unsecured), even if the borrower repays the full outstanding account balance, the account is not considered paid in full until shared equity and the MRA have been paid.
F. Handling Borrowers in Bankruptcy
The servicer is responsible to take appropriate action during bankruptcy proceedings to protect the borrower and the government’s interest. Upon receipt of a bankruptcy notice, the servicer must:
x Obtain a copy of the bankruptcy petition;
x Complete and file a proof of claim within the time set by the bankruptcy court;
x Maintain copies of all documents associated with the bankruptcy;
x Review the proposed repayment plan;
x Comply with all applicable laws and regulations;
x Monitor the bankruptcy proceedings;
x Monitor receipt of post- and pre-petition payments; and
x Determine that tax and insurance payments are current or determine if additional
funds are necessary to maintain an escrow account. The servicer must refer the account to an attorney when the account becomes 30 days or more delinquent. Refer to Chapter 18 for more detailed information on delinquent accounts in bankruptcy.
G. Complying with the Servicemembers Civil Relief Act (SCRA)
The Servicemembers Civil Relief Act requires that the interest rate charged a borrower who enters full-time active military duty after a loan is closed not exceed six percent if the borrower’s military obligations are affecting their ability to pay. The borrower should supply the servicer with documentation of their active-duty status. Active military duty does not include participation in a military reserve or the National Guard unless the borrower is called to active duty.
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1. Change of Active Military Status
The servicer will cancel the six percent interest rate and resume the promissory note interest rate when notified by the borrower that he or she is no longer on active military duty. The servicer may process a new payment assistance agreement if the borrower is eligible according to Appendix 6 of this Handbook.
2. Amount of Assistance
According to Appendix 6 of this Handbook, after reduction of the interest rate to six percent, the amount of payment assistance received during the period of active military duty will be the difference between the amount due at the subsidized rate for principal and interest and the amount due at the six percent interest rate. The six percent interest rate will be effective with the first payment due after the servicer confirms active military status of the borrower.
The Agency will not include interest on a loss claim filed in excess of six percent for the period the veteran was eligible, nor for any period of time the servicer failed to establish the note rate after notification by the borrower of non-active military service.
H. Approving Borrower Actions
During the term of the guaranteed loan, the borrower may ask the servicer for permission to undertake actions that could affect the value of the security property.
Section 2 of this Chapter provides guidance to servicers regarding such actions as a partial release of security or a transfer and assumption of an outstanding guaranteed loan.