Major government housing policy updates are almost ready for primetime, and mortgage servicing organizations that are not yet well-versed with the changes are strongly encouraged to get up to speed in order to minimize compliance and enforcement risk.
During the Mortgage Bankers Association’s National Mortgage Servicing Conference & Expo this week in Orlando, a panel of experts addressed the new U.S. Department of Housing and Urban Development (HUD)/Federal Housing Administration (FHA) Single Family Housing Policy Handbook, which represents a herculean effort on the part of the agencies, servicers and other stakeholders. Effective next month and applicable to FHA-insured loans assigned on and after June 15, 2015, the guidelines in the handbook are, in many respects, the culmination and consolidation of more than 20 years’ worth of mortgagee letters, notices and other HUD/FHA documents.
The end result is staggering and, depending on an organization’s place on the real estate finance spectrum, overwhelming. The PDF of the new handbook is 900 pages, and the guidelines affect every portion of the single-family housing and finance industry.
“It is out, ready to go live on March 14, and chock-full of new information and clarifications,” said Krista Cooley, partner at K&L Gates. “There will definitely be a lot of growing pains as this comes on.”
The servicing and loss mitigation portions of the handbook were updated as recently as last week, and the full range of changes and clarifications get to the “real meat” of the industry, she remarked: performing-loan servicing, default management, loss mitigation and related functions. The challenge for servicers, according to the panelists, will be taking the dense new handbook as gospel while also exercising judgment in how to interpret the guidelines. The task is daunting.
“There’s no shortcut in understanding HUD and the changes to the guide,” commented Alex McGillis, who works in capital markets and servicing for Quicken Loans. He explained that servicers and their partners – whether law firms, property preservation companies or other organizations – really need to dig into the handbook and figure out how to interpret the guidelines and then be invariably consistent in how they administer loans and work with borrowers.
“Consistency is key,” he emphasized.
McGillis said there are about 300 clarifications in the new handbook, and the difference between a “must” and a “may” could be a single word in the guideline. In some instances, guidance has been removed or changed relative to prior mortgagee letters or other documents, and it will be critically important for servicers to show how and why they interpret something a particular way and to document all the work from file to file.
After all, audits are a reality, especially in the current environment. The HUD Office of Inspector General is looking closely at FHA claims, which, in turn, places servicers’ procedures under scrutiny.
“They’re going to come down hard on compliance,” said Carlo Porcelli, senior vice president and senior program director of counterparty relations at Bank of America Home Loans.
The good news, though, is that everyone is starting from the same place with the implementation of the new handbook, so there’s an opportunity to become a part of the compliance dialogue rather than a casualty of enforcement.
“The auditors don’t know this any better than we do,” Cooley explained, noting that the handbook is the great equalizer right now: It’s new to every party. In turn, if servicers do a solid job executing their policies and procedures and documenting their activities, auditors will be able to follow along and gain insight into what compliant servicing looks like in the context of handbook guidelines.
Handbook changes and clarifications affect a huge range of servicing functions, from applying partial prepayments and arranging face-to-face interviews with borrowers to determining property occupancy status and handling local property preservation/protection requirements. Indeed, compliance will require a holistic review of servicing policies and operations.
Aside from diving head-first into the new handbook itself, the panelists recommended that servicers use the array of tools that HUD/the FHA have made available, such as HUDCLIPS, become acquainted with FAQ sections of the portal and join email listservs.
Servicers with inquiries can go to hud.gov/answers or send an email to email@example.com.