Tag:FHA

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FHA Seeks Statutory Authority to Transfer Mortgage Servicing Rights
2
HUD Clarifies Procedures for Demanding Indemnification from FHA Lenders Participating in the Lender Insurance Program
3
FHA Investing Mortgagees No Longer Required to Provide Compliance Report
4
FHA Announces Upcoming Changes to Strengthen the Mutual Mortgage Insurance Fund
5
FHA and RHS Respond to Hurricane Sandy
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FHA Issues Annual Financial Report to Congress
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Conflicted Out: When Must a Servicer Follow FHA Guidelines over the Global Foreclosure Settlement Servicing Standards?
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FHA’s Lender Insurance Program Will Soon Cost Lenders More Money
9
FHA: HUD Uses FAQs to Communicate Policy Changes

FHA Seeks Statutory Authority to Transfer Mortgage Servicing Rights

By: Laurence E. Platt,  Kathryn M. Baugher

For at least the third time in recent months, the Federal Housing Administration (“FHA”) has asked Congress for legislative authority to force underperforming loan servicers to transfer the servicing of FHA-insured loans to another servicer.

FHA Requests for Authority to Transfer Servicing

FHA’s latest request came on June 4, 2013, when FHA Commissioner Carol Galante testified before the Senate Committee on Appropriations. In her written testimony, she proposed that Congress provide legislative authority for FHA to require the transfer of servicing “when a servicer is at or below a servicer tier ranking score (TRS) of III, or when the Secretary deems the action necessary to protect the interests of the MMI [Mutual Mortgage Insurance] Fund.” Under these circumstances, FHA would like the power to “(1) transfer servicing from the current servicer to a specialty servicer designated by FHA; (2) require a servicer to enter into a sub-servicing arrangement with an entity identified by FHA; and/or (3) require a servicer to engage a third-party contractor to assist in some aspect of loss mitigation (e.g. borrower outreach).”

At the hearing, Commissioner Galante indicated that some servicers appear to be meeting individual loss mitigation requirements, but their portfolios still have a lower rate of successful loan modifications relative to other servicers. Commissioner Galante stated that there appears to be “something deeper going on” with these servicers that FHA reviews are unable to identify. In situations where FHA cannot get the servicer to improve loss mitigation outcomes “through other means,” FHA would like to require a transfer of servicing.

While Commissioner Galante’s testimony created some buzz in industry publications, her proposal is not a new one. In fact, FHA made identical requests in November and December of 2012. In December 2012, for example, U.S. Department of Housing and Urban Development Secretary Shaun Donovan called the requested authority “a critical step,” and said that it would “send a very strong message to those servicers that are underperforming.” Secretary Donovan also made clear that FHA needs legislative authority in order to force the transfer of servicing as proposed.

Risks Associated with FHA’s Proposal

In making this legislative request, FHA did not discuss the interplay between FHA and Ginnie Mae, or the impact that FHA authority to transfer servicing might have on Ginnie Mae. While FHA insures certain of the pooled mortgage loans underlying Ginnie Mae securities, FHA is not a counter-party to the servicing agreements for such loans. In the ordinary course, Ginnie Mae would be the counter-party under the Guaranty Agreements pursuant to which Ginnie Mae guarantees the servicer’s (or in Ginnie Mae parlance, the “issuer’s”) payment obligations to security holders. Thus, any remedy demanded by FHA will have a ripple effect on the Ginnie Mae servicing rights. In addition, any requirement to transfer servicing or appoint a sub-servicer presumably would have to be accomplished in accordance with Ginnie Mae guidelines.

The risk of FHA forcing a transfer of servicing may dilute the value of the contract right to service, because the servicer may be forced into a distressed sale, particularly if the required time period for the transfer is short. It may lead to a cross-default under other commercial agreements, such as a revolving credit agreement that financed the acquisition or holding of such rights. If it is deemed to be a regulatory action or sanction, FHA’s requirement may have an adverse impact on state mortgage servicing and origination licenses. And the circumstances that give rise to the forced transfer of servicing or appointment of a sub-servicer might be used by Ginnie Mae as an event of default under the Guaranty Agreement and provide an independent basis for Ginnie Mae to terminate the servicing (“issuer responsibility”) with cause.

The bottom line is that FHA’s request for new statutory authority should be carefully considered. While a requirement to transfer servicing is a less drastic alternative than the loss of FHA approval from the perspective of an approved mortgagee, the inability to realize fair market value for the mortgage servicing rights in question could have a significant adverse effect on a servicer. We would hope that any proposed legislation in this area would not authorize FHA to impair valuable mortgage servicing rights without, at a minimum, building in robust “due process” protections and standards of materiality or material adverse effect.

HUD Clarifies Procedures for Demanding Indemnification from FHA Lenders Participating in the Lender Insurance Program

By: Krista Cooley

On Wednesday, HUD issued Mortgagee Letter 2013-10 to implement the Lender Insurance (“LI”) regulation it finalized in January of 2012. As announced in the final regulation, FHA mortgagees participating in the LI program will be required, as a condition of approval for LI authority, to indemnify HUD for self-endorsed loans that HUD deems ineligible for FHA insurance. Mortgagee Letter 2013-10 provides additional guidance on the Department’s policy changes regarding indemnification, which are effective for all loans insured by LI mortgagees on or after April 9, 2013. The Mortgagee Letter and a revised Lender Insurance Guide released Wednesday provide additional guidance regarding LI changes, including LI eligibility criteria and HUD’s processes to monitor, terminate, and reinstate LI authority. Read More

FHA Investing Mortgagees No Longer Required to Provide Compliance Report

By: Phillip L. Schulman, *Nathan Pysno
*Mr. Pysno is not admitted to the D.C. Bar; currently admitted to the Maryland Bar.

A recent change to the HUD Office of the Inspector General Audit Guide has removed the requirement that all FHA investing mortgagees submit reports on internal controls and compliance.

An investing mortgagee or lender may purchase, sell, and hold FHA-insured mortgages but cannot originate or fund FHA loans. An investing mortgagee may service FHA loans with approval of the HUD Secretary. Read More

FHA Announces Upcoming Changes to Strengthen the Mutual Mortgage Insurance Fund

By: Phillip L. Schulman, Krista Cooley

The U.S. Department of Housing and Urban Development’s recently announced that an independent actuarial review of the FHA Mutual Mortgage Insurance (MMI) Fund found that the Fund’s capital reserve ratio has fallen to -1.44%, which represents a negative economic value of $16.3 billion. In the wake of this announcement, HUD unveiled a series of aggressive steps it intends to take over the next several months. According to the Annual Report provided to Congress earlier this month, FHA lenders will have to contend with several policy changes to FHA origination and servicing requirements in the coming year, as well as to the Home Equity Conversion Mortgage (HECM) program. Read More

FHA and RHS Respond to Hurricane Sandy

By: Holly Spencer Bunting , Kathryn M. Baugher

In the wake of Hurricane Sandy, both the U.S. Department of Housing and Urban Development (“HUD”) and the Rural Housing Service (“RHS”) have issued guidance intended to help homeowners with government insured or guaranteed loans who were affected by the storm. With regard to loans insured by the Federal Housing Administration (“FHA”), the guidance is a combination of reminders about existing relief or insurance programs available to assist disaster victims and new policies designed to aid borrowers in the process of obtaining FHA financing for properties impacted by natural disasters. With regard to RHS-guaranteed loans, the guidance focuses on foreclosure and loss mitigation relief available to borrowers impacted by Hurricane Sandy. Read More

FHA Issues Annual Financial Report to Congress

By: Phillip L. Schulman, Krista Cooley

On Friday, November 16, 2012, the U.S. Department of Housing and Urban Development released its 2012 Annual Report to Congress and announced that the FHA Mutual Mortgage Insurance (MMI) Fund suffered a $16.3 billion deficit. In addition, for the fourth year in a row, the MMI Fund has failed to meet its 2% statutory reserve amount, an amount required under the National Housing Act to be held back to cover excess loss.

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Conflicted Out: When Must a Servicer Follow FHA Guidelines over the Global Foreclosure Settlement Servicing Standards?

By: Krista Cooley, Rebecca Lobenherz

The National Servicing Standards, outlined in the March 2012 Global Foreclosure Settlement, are difficult to reconcile with the already stringent servicing requirements in place for the Federal Housing Administration’s (“FHA”) single family loan insurance program. The National Servicing Standards are expressly subject to and must be interpreted in accordance with applicable federal, state and local laws, rules and regulations, and the terms and provisions of the requirements, binding directives and investor guidelines of the mortgage insurer, including FHA. In the event of a conflict between such requirements and the National Servicing Standards such that a servicer cannot comply with the National Servicing Standards without violating these requirements or being subject to adverse action, then the servicer must document such conflicts and notify the monitoring committee that the servicer intends to comply with the FHA requirements to the extent necessary to eliminate the conflict. Read More

FHA’s Lender Insurance Program Will Soon Cost Lenders More Money

By: Krista Cooley, Phillip L. SchulmanHolly Spencer Bunting

FHA mortgagees participating in the Lender Insurance (“LI”) program will be required to indemnify HUD for self-endorsed loans that HUD deems ineligible for FHA insurance based on a final regulation to be published by HUD on January 25, 2012. Since January 1, 2006, FHA mortgagees, with approval from HUD, have been permitted to endorse loans themselves, without first having to send the loans to HUD. The final regulation marks the first time HUD will make significant changes to the LI program, one of which automatically increases LI lenders’ liability for the loans they close and self-endorse. These changes finalize LI regulations proposed by HUD in October 2010 and will take effect on February 24, 2012. Read More

FHA: HUD Uses FAQs to Communicate Policy Changes

By: Holly Spencer Bunting

Mortgagee Letters released by the Federal Housing Administration (“FHA”) appear to no longer be the final word on policy changes made by FHA and HUD related to FHA lending. Although FHA has maintained “FHA Frequently Asked Questions” on its website for some time, it only recently began to publish targeted Frequently Asked Questions in response to specific Mortgagee Letters and questions submitted by industry participants. Generally these FAQs reiterate the guidelines stated in Mortgagee Letters and define practical implications of implementation. However, with FHA’s most recent release of FAQs related to Mortgagee Letter 2011-34 and HUD’s October 25, 2011 Industry Call (“FAQs”), HUD has reversed its position on at least one issue (in lenders’ favor) and offered other guidance that is not clear from the plain language of Mortgagee Letter 2011-34.

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