Associations propose three key adjustments
The Mortgage Bankers Association has written a letter to the Federal Housing Administration regarding its proposed payment supplement partial claim (PSPC).
In a joint letter with the American Bankers Association and the National Mortgage Servicing Association, MBA and the trade associations agreed that there’s a need for a loss mitigation solution that provides payment relief to seriously delinquent FHA borrowers in a high-rate environment while protecting Ginnie Mae issuers from losses.
However, the groups stated that the complexity of the PSPC limits its potential effectiveness.
“The complex and resource-intensive PSPC would significantly increase the operational, compliance, liquidity, and reputational risk for mortgage servicers while introducing potential harm to borrowers,” read part of the seven-page letter sent to FHA commissioner Julia Gordon.
Therefore, the associations proposed the following adjustments to the proposed policy:
1. Simplify and clarify the PSPC by creating a three-year level payment term, prioritizing permanent relief over temporary relief, reinforcing FHA’s traditional use of a prescribed waterfall, and addressing substantial documentation issues with the PSPC proposal;
2. Increase the allowable incentive to $3,500 to protect servicers’ liquidity positions in today’s market and the value of Ginnie Mae MSRs actively being transferred among program participants; and
3. Establish the mandatory compliance date for servicers 12 months after the publication date of the Draft ML.
“The PSPC, while straightforward in theory and conceptual design, is unnecessarily complex,” the associations wrote. “It is impractical for servicers to deliver to borrowers as a viable loss mitigation solution unless the changes outlined here are made. Standardizing the PSPC will help servicers clearly communicate and educate borrowers on how the PSPC works and the obligations a borrower is expected to meet throughout the payment supplemental period.
“To achieve the goal of creating a workable program that assists struggling borrowers, FHA must change the draft ML by simplifying the PSPC, increasing the incentive amount, and providing more time to implement the PSPC. The Associations urge FHA to observe lessons learned from the pandemic where servicers successfully delivered loss mitigation assistance to borrowers throughout the pandemic because of the ability to implement scalable processes, including self-service technology.”
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