Taylor Hildenbrand, Mortgage Servicing Compliance & Consulting Professional | Mar 29, 2019
Spring in Oklahoma brings many new things. Aside from tornadoes, freak hail storms and bipolar weather patterns, spring brings all the runners out from their winter hiding places and out onto the sidewalks and park trails en-masse. You know what I’m talking about, you’ve seen them! As any runner could tell you, keeping up with “last year’s pace” is usually the goal. Apparently it’s FHA’s as well.
FHA announced on Wednesday March 27th some spring cleaning of their own by way of tidying up HB 4000.1.
All changes are effective immediately.
Like most runners out there, FHA is merely trying to keep up with the 2017 version of itself, and maybe a new accessory (or seven). All ML’s from 2016-2019 have been added as promised, including the notorious PACE obligation. Pun aside, there really are some significant impacts to servicing buried among the 63+ updated sections to the servicing/ claims sections.
Follow this link to the latest and greatest version of 4000.1 or copy this into your browser: http://bit.ly/FHA40001. For those not interested in reading all 1,030 pages, here’s a quick rundown.
What’s NEW for servicers in the latest version of 4000.1? Inclusions of PACE requirements, Revisions to claims’ required doc’s and calculations, Loss Mitigation evaluations & Assumption processing. Everything else was virtually un-touched.
- Inclusion of PACE requirements
… and not the running kind! All requirements in ML 17-06 are now included in 4000.1. So technically this isn’t new. BUT, if you ignored PACE because HUD reversed course 11 months later, you better speed up that change implementation! HUD never changed it’s mind about the
servicing requirements for PACE, only that they wouldn’t endorse cases with PACE obligations starting January 2018 (ML 17-18). PACE touches nearly all aspects of servicing, from payment application, PFS/ DIL/ CWCOT appraisals, and the Foreclosure Management Review process. Therefore, the line-level updates into 4000.1 are numerous. If you feel 100% confident about your PACE compliance, hooray! Nothing new for you. If not, let’s talk.
2.
Claims’ new required document list & misc. calculations
This is new news people. FHA has significantly updated their list of required documents for a Claims Review File (i.e. “here is the list of documents HUD expect during a claims review”). There are 16 new line items. They’ve also gone into extensive detail about how to calculate timelines, debenture interest and fee recovery given certain scenarios. Some other noteworthy changes include:
- 16 new items for you Claims Review File can be found in IV.A.1.c.i
- New cutoff date for claiming interest on escrow advances if you missed FLD or RDT. If missed, you can only claim up to the date of the missed timeline, not the date the claim was filed, which in some cases can be a LONG time. IV.A.2.a.ii(C)(2)(a)
- Attorney fees capped to 75% of maximum allowable if, after first legal is filed, borrower completed DIL, PFS or bankruptcy petition filed. IV.A.2.a.ii(K)(1)(a)
- Timeframe for Debenture interest calculation on Parts C, D and E is now much more clear for when timelines are missed. IV.A.2.a.i(A)(2)(b)(ii)
- Timeframe for debenture interest calculation for failed SFB plans revised. IV.A.2.a.i(C)(1)(c)
- Bankruptcy fees are payable according to the same restrictions as Foreclosure attorney fees. IV.A.2.a.ii(K)(1)(a)
- You can’t file your claims via fax anymore (people seriously still did that?). IV.A.1.a.vii(C)(2)
- Updated address to send your paper claim submission. Again.. unless you lost your privileges, why? IV.A.1.a.vii(C)(6)
3.
Loss Mitigation: Restricted Participation, Financial Review & Signed Agreements
There’s quite a bit of movement in this section, primarily because FHA finally removed all mention of their traditional modification and included everything PACE-related. Aside from those “spring cleaning” exercises, FHA updated (read “added” or “changed”) several areas of particular interest to those in Loss Mitigation. Here goes:
- Added a step to the Evaluation of the Borrower’s Financial Condition: Servicers must review and validate (as in “perform it and document it”) the borrower’s financial information to determine there is no deliberate manufacturing or misrepresentation of their financial information or of their qualifying status. III.A.2.i.iii(A)(1)
- Strict Enforcement of FHA-HAMP default status: Servicers must ensure the loan is at least 3 payments down (“61 days past due”) at the time the modification is executed. If this doesn’t happen, you can’t file an incentive claim either! III.A.2.k.v(B)(1)
- Strong language on Signed Agreements. You must receive a signed formal forbearance agreement or TPP and counter-sign. This document must be in claims file. While this isn’t new, here’s why it’s important. Any “repayment/ forbearance” plan greater than 3 months must require signatures from both parties. Many servicers get this wrong. Clearly FHA noticed. III.A.2.k.ii(B)
- Stronger wording on Restricted Participation: FHA’s not playing. You really do have to check for this stuff in order to allow the borrower(s) to participate in HUD’s Loss Mitigation Program. SAM exclusion list has been replaced by a CAIVRS check for FHA-HAMP evaluations in addition to added language relating to unresolved and DLQ federal tax debt. If there is unresolved, DLQ Federal Debt, they’re not eligible for FHA-HAMP. Also added: additional steps to certify that the borrower does not own other FHA-insured real estate unless they’re exempt or was a borrower on a loan where an FHA claim was paid. The ante has been raised! III.A.2.j.ii(C)(1)
- Closed the loophole of “may” vs. “must” and “are” vs. “refer to” for forbearance plans. If you don’t know what I’m talking about, good. Nothing to see here! Forbearance plans are a required step in the waterfall evaluation process and an “informal/formal forbearance” by any other name is still a forbearance. III.A.2.k.ii(B)
- You don’t have to tell the borrower that their DIL transaction will be reported to CAIVRS. While it may not warrant a full-on process overhaul, hooray for one less regulation! III.A.2.l.iii(C)
- PC funds can’t be used to bring new payment below the target. Technically, this isn’t new. However, FHA must have seen too many servicers incorrectly applying the Waterfall (as I have) and added this clarification into the Decision Point table itself. No portion of the Partial Claim funds can be used to bring the post-modified payment below what you calculated your target payment to be. If you’re not sure how to check for this, let me know and we can walk through it. III. A. 2. j. iii.
4. Assumptions.
Here’s some big news for all 12 Assumptions in your pipeline:
- Payoff Letter from Novad at completion. Before considering the Assumption complete, you must get a “Partial Claim payoff letter” from HUD’s Servicing Contractor. Any guesses where you need to keep it and why? III.A.3.b.v
- Mandatory disclosure re: PACE. Technically this falls under PACE changes from ML 17-06, but just one bullet felt lonely. The Seller must fully disclose the PACE obligation to the buyer. Any guesses why? III.A.3.b.viii
///// Conclusion /////
FHA’s update helps the Department keep “pace” with common questions/ loopholes, fraud prevention, and most importantly, itself.
Incorporating it’s 2017’s PACE guidance and removing the mention of the defunct “modification” was a massive undertaking.
Overall, FHA’s new guidance yields several key takeaway’s for the mortgage servicer for Loss Mitigation evaluations and decisions and for Claims’ form preparation and calculations.
Oh, and did I mention that the changes above are effective immediately? Looks like it’s time to pick up the pace on that change implementation!
Need help? Feel free to reach out!
Taylor Hildenbrand | Taylor@BridgeRM.com | 405.850.5037
Disclaimer: Obviously there were many other small changes. The majority of what FHA added wasn’t
new. It was just a re-shuffling or over-clarification of what they already require. They’re getting themselves up to speed. I always reserve the right to be wrong. I’d love your feedback if you feel like I missed something.
The views expressed in this article are mine and do not reflect the views or opinions of any other entity. This is not legal advice. Always refer to the authoritative guidance or your legal counsel.
