The T-Rex in Jurassic World is fierce, and it always shows up unexpectedly. Before you know it, the monster has snapped up an innocent soul without warning. This reminds me of the first legal deadline in FHA servicing. Servicers know this looming deadline is just around the corner. Everything seems great, and then SNAP! A chain of events has been put into play, making it impossible to meet this challenging deadline. The innocent servicer is doomed to have interest curtailed for the remainder of the foreclosure process. Due to one unforeseen event, the servicer has automatically lost thousands of dollars in interest revenue. 

Have you ever found yourself hiding behind your car, hoping the deadline is not as close as you think?   

The penalty behind missing this foreclosure deadline is obscene. A deadline imposed by FHA requires the servicer to take a first legal action by a specific and calculated date based on other activity that has occurred on the account. It is a smelly, ugly rule that serves no useful purpose. I am sure at some point HUD had a problem getting servicers to proceed with foreclosure and implemented this hard-handed penalty. It may have served a purpose long ago, but we are no longer in that time. Under Brian Montgomery’s leadership in the prior administration, FHA attempted to reverse this rule. FHA knows the issue, but most likely, since it saves FHA from paying insurance proceeds, it will probably never change. 

The ironic thing is FHA wants to keep borrowers in their homes. However, the customer loses when the servicer turns their attention away from helping the borrower to forcing the loan into foreclosure in a specific timeframe. FHA’s first legal deadline should be an example of a double standard in the dictionary. Not only does it harm the borrower and the servicer, but this one simple rule harms the goal of affordable housing. Guess what? The borrower ultimately bears the burden of this cost.  

So, what should we do about it? Servicing the FHA delinquent loan and managing the first legal deadline is difficult. Our team has developed complex workflows and calculators deliverable through an affordable workflow tool. If there were ever a time and place for workflow in mortgage servicing, it would be in and around the foreclosure timelines required by FHA. If you are with me that this deadline is ridiculous, reach out to your GNMA and FHA contacts. 

If you need help managing this deadline, let us know at insights@bridgerm.com.