On April 19, HUD announced wholesale changes to the loss mitigation section of the FHA Single Family Housing Policy Handbook 4000.1. The changes that the FHA is making to Section III, the servicing and loss mitigation section, brings the FHA in line with other investors /insurers, streamlines servicing policies, and makes the loss mitigation process easier for borrowers and servicers.
Up until now, the FHA required borrowers to provide extensive documentation for loss mitigation applications. With these changes, they will join other investors in moving to a model that uses information already available to the servicer, such as property value.
The most extensive change streamlines the eligibility requirements for the FHA waterfall. Borrowers will have fewer requirements to qualify for loss mitigation options.
- FHA updated its document requirements for borrowers requesting loss mitigation. Servicers can now use the Fannie Mae/Freddie Mac Form 710.
- FHA removed prerequisites to qualify for the FHA-HAMP program, enabling more borrowers to obtain a modification.
- Removed requirements for Informal and Formal Forbearance Repayment Plans, opening up these options to more borrowers.
- Under certain conditions borrowers will now be eligible for Pre-Foreclosure Sales or Deed-in-Lieu of Foreclosure in disaster areas.
- Borrowers impacted simultaneously by COVID and by a Major Disaster Area must be provided with the COVID loss mitigation options.
- Servicers must evaluate borrowers for FHA-HAMP following a simple three-step process. The standalone partial claim footnote has been removed.
- There are other smaller changes affecting borrowers who have multiple FHA loans or who appear on LDP/GSA/SAM exclusionary lists.
Servicers will have to rework their existing waterfalls to ensure compliance with the new FHA guidelines. It is likely that due to this new guidance, mortgage servicers will be able to remove requirements from their existing waterfalls. Before implementing any changes, servicers should validate their interpretation of these changes with counter-parties, industry colleagues, and with HUD itself.
HUD will be offering pre-recorded webinars to discuss the Handbook updates in the coming days. The effective date of these changes is August 17, 2021.
If you are a servicer or a bank interested in using Brace to help digest and implement these changes for your operation, please contact us at the link below.
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Written by: Nicholas Corpuz, Senior Director of Compliance