The Federal Housing Administration (FHA) is proposing significant changes to the requirements mortgage servicers must adhere to when servicing FHA-backed mortgages that have gone into default.
The FHA says it is streamlining its loss mitigation processes by reducing the number of steps servicers must take in order to evaluate delinquent borrowers for foreclosure alternatives.
These changes will reduce the number of steps that a servicer and borrower must take to resolve a delinquency and enter into a loss mitigation home retention product, the FHA says in a release.
In addition, the FHA is removing certain obstacles that will allow servicers greater flexibility for evaluating an unemployed borrower for a special forbearance agreement.
Most of the changes are geared toward accelerating the loss mitigation process. Under the revised rules, servicers would be required to convert successful three-month trial modifications into permanent modifications within 60 days instead of the average four to six months.
In addition, servicers are to allow borrowers with three missed mortgage payments to qualify for a partial claim to bring their arrearages current versus the previous requirement for a minimum of four missed payments.
The FHA is also ending the traditional stand-alone loan modification option, so struggling borrowers can access the FHA’s Home Affordable Mortgage Program option, with its greater payment relief, sooner.
Finally, the FHA is eliminating the required 12-month term for its special forbearance option. This will allow servicers to offer this option to more unemployed households.
For more, read the FHA’s mortgagee letter.