"Eliminating paper Mortgage Insurance Certificates will benefit the lending industry as well as HUD," said Commissioner Weicher. "The new electronic process will not only save time and reduce paperwork, it will produce savings to the industry and the Department."

HUD issued more than 1.3 million original paper MICs over the last 12 months along with about 700,000 duplicates. Considering the lender's staff time involved in requesting, receiving, filing, tracking and retrieving two million documents each year, the savings to the industry is estimated to be as much as $80 million in the coming year alone. HUD also estimates that this change should generate a savings to the Department of close to $10 million.

In addition to helping originating lenders, this action will benefit servicers and holders of FHA mortgages. HUD previously required the original paper MIC or a paper duplicate to be submitted to the Department when a lender files a claim on defaulted mortgages. The Department will discontinue this requirement, allowing lenders to stop the staff-intensive process of ordering and tracking the receipt of the duplicate paper MICs.

The change, that will be effective 30 days from the release date of the mortgagee letter, is being driven by the dynamic nature of the mortgage industry, with mortgages bought and sold with greater frequency, as well as the heavy consolidation trend of mortgage portfolios. In this environment, the documentation associated with the mortgage process becomes even more cumbersome than in the past, and the need to update records and replace missing documents becomes much more costly.

This action, outlined in the mortgagee letter to all FHA-approved lenders, does not change the basic mortgage insurance process. The mortgage insurance contract is not effective until the mortgage is endorsed for insurance by HUD. Mortgage lenders participating in the Federal Housing Administration's (FHA) Single Family mortgage insurance programs will be able to confirm the insurance endorsement status of a mortgage via HUD's "FHA Connection" application on the Internet.

HUD is the nation's housing agency committed to increasing homeownership, particularly among minorities, creating affordable housing opportunities for low-income Americans, supporting the homeless, elderly, people with disabilities and people living with AIDS. The Department also promotes economic and community development as well as enforces the nation's fair housing laws. More information about HUD and its programs is available on the Internet.

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Editors: For a copy of the mortgagee letter, visit hudclips.