The FHA is moving faster to scale back temporary relief measures for borrowers affected during the pandemic.
A temporary loan-modification option will end on Sept. 30 and the new permanent successor will go into effect the next day instead of starting Feb. 2 of next year. Also, permanent loss mitigation will generally be available every 24 months instead of
Other changes in the latest mortgagee letter include the cancellation of certain planned increases in borrower compensation for pre foreclosure sales, deeds-in-lieu and cash for keys.
The industry's first take on a 251-page mortgagee letter containing these and other servicing changes for loans the FHA insures was generally positive on a net basis, with expectations of further policy changes in the same vein down the road amid a broader review.
"We appreciate FHA's efforts to reinstate a cap on the number of times a borrower can utilize a home-retention program and require the successful completion of trial payments," Mortgage Bankers Association President and CEO Bob Broeksmit said in a press release.
Annie Mac Chief Operating Officer Craig Ungaro called his initial impression of the changes "neutral to positive" and in line with shifts the industry has anticipated given the pandemic has ended.
"I could have seen it going from 18 to 36, but 24 is fair," he said, referring to the time limit for home retention options.
"You don't want to have a system from five years ago that gets abused," he added. "That could have long-term effects on housing. Housing is strong. Borrowers are in a stronger place, but if you perpetuated some of this, it could get out of hand."
Ungaro expressed particular concern over some loss mitigation options that deplete equity over time.
"If we continue to put payments to the back of loans, the equity position will deteriorate and not be as advantageous as it is now," he said.
The Trump administration "will continue its review of the entire FHA permanent loss mitigation waterfall," according to the mortgagee letter.
The FHA is specifically reviewing the
There still are some situations where additional flexibility in payment relief beyond what existing rules allow for that could be helpful, according Donna Schmidt, managing director and owner of DLS Servicing.
Schmidt welcomes the change in the transition timeline and the 24-month limit but has some concern about the impact of
She would also like to see flexibility for situations such as when a higher-earning co-borrower dies and the survivor needs first-time assistance.
"There is no option to allow a further reduction of the P&I to bring the payment to an affordable level for this borrower who has seen a significant reduction in household income," she said.
Another challenge is the generally shorter timeline could make the busy fourth quarter more hectic. Also servicers will be juggling other changes this year like the end to the Veterans Affairs Servicing Purchase program, said Sagent Chief Compliance Officer Matthew Tully.
One thing that will help is although the ML generally accelerates the original timeline, some of the technical work related to updating the FHA's single-family default monitoring systems reporting codes and elements in line with the new directives is phased in over a longer period.
"You'll actually start implementing the contours of the program on October 1, but then you won't start doing the reporting until February," said Tully, noting that this makes data updates important to investors more manageable from a technology development perspective.
He said while formal mortgagee letters like the FHA's latest waterfall update can be lengthy reads, they ultimately are helpful because they provide servicers and vendors like Sagent with more actionable information than preliminary announcements that are made about policy shifts.
"Until there's something that's published, you can't change how you service," Tully said.
