The Mortgage Bankers Association (MBA) is urging the Federal Housing Administration (FHA) to revise what the trade group calls an arbitrary penalty structure for servicers that fail to begin foreclosures in accordance with agency time frames.

In recent years, the U.S. Department of Housing and Urban Development (HUD) has slashed in half the allowable time frame for servicers to initiate foreclosures - reducing the span from 12 months to six months. The reduction has boosted cost savings at the agency but increased the risk for servicers, which must take loss mitigation actions and foreclosure timelines concurrently, an MBA NewsLink report explains.

In a letter to the FHA, the MBA explained that its primary concern with the agency's foreclosure policies is the "arbitrary nature" of penalties for servicers that do not initiate foreclosures in time.

“One can see that missing the deadline by one day results in an extreme penalty for the mortgagee,” the MBA said in its letter. “An intervening bankruptcy could double or triple these losses. Failure to start foreclosure timely creates a more significant loss than the failure to meet any subsequent event. In fact, the failure to meet HUD’s timetable for early events (such as initiation of foreclosure) will result in serious losses for mortgagees, even if HUD’s timelines for completing [the] foreclosure sale or conveying property are met or reduced.”

SOURCE: MBA NewsLink