Trade associations seek improvements in FHA's recently revised proposal
Mortgage trade groups have raised concerns about the practicality and implementation of the Federal Housing Administration’s (FHA) revised loss mitigation proposal, suggesting it could be more effective with further modifications.
In a draft mortgagee letter (ML) to FHA Commissioner Julia Gordon, the Mortgage Bankers Association (MBA) and the National Mortgage Servicing Association (NMSA) proposed a “payment supplement partial claim“ option.
“The resources required to implement and maintain the Payment Supplement, including a servicer’s ongoing obligation to borrowers and HUD (Department of Housing and Urban Development) throughout the Payment Supplement Period, require additional amendments to the Draft ML,” the ML explained.
The payment supplement policy suggests a combination of a partial claim to update the mortgage and a new monthly principal reduction (MoPR), which would temporarily assist in covering the main portion of a borrower’s monthly mortgage payment. It proposes a temporary payment reduction for three years, after which the borrower would resume full payment of the principal and interest amount.
This plan would allow mortgage servicers to both update a borrower’s mortgage status and offer temporary reductions in their monthly payments for up to five years.
The MBA and NMSA have proposed four major amendments to enhance the policy’s effectiveness. These include increasing the incentive payment for participation from $1,000 to $3,500, modifying the model note and payment supplement agreement, ending the supplement in cases of borrower re-default, and allowing 9-12 months for the successful rollout of the policy.
“Sustainable loss mitigation policy is necessary to preserve affordable homeownership,” the industry bodies said in the letter. “FHA guidance must continue to reduce the program’s complexity as the draft ML touches on all aspects of a servicer’s operations and loan lifecycle.”
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The MBA and NMSA stress the importance of creating a sustainable loss mitigation policy to maintain affordable homeownership. They argue that the current proposal, while well-intentioned, poses significant administrative and financial burdens on servicers, especially in the context of the ongoing recovery from the COVID-19 pandemic.
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