The Department of Housing and Urban Development
promised the country's largest mortgage banking trade group it would look into altering its recently extended minimum forbearance period for unemployed borrowers, which could result in higher reimbursements to servicers.
In July, HUD, the Federal Housing Administration
and the Treasury Department
told mortgage servicers participating in their programs to provide
seriously delinquent unemployed borrowers a minimum one-year forbearance period. It was an increase from the previous four-month minimum in FHA programs and three-month requirement under the Home Affordable Modification Program.
The Mortgage Bankers Association
expressed concern before the new policy went into place.
In June, the MBA sent a letter
to FHA Acting Commissioner Carol Galante and Ginnie Mae
President Ted Tozer, requesting a meeting. Smaller servicers would be put at a disadvantage under the new guidelines, the MBA said.
Servicers must advance scheduled principal and interest payments, escrows, taxes and insurance when borrowers do not make a monthly payment, under FHA and Ginnie Mae programs. Often, these companies finance the advances and must pay interest.
The FHA reimburses the servicer for advanced interest at what is called the debenture rate, which in the current market is less than the rate investors take on a mortgage-backed security guaranteed by Ginnie Mae.
If the loan goes into foreclosure, the servicer recovers a portion of those advances and none of the foreclosure expenses.
Larger servicers often buy the nonperforming loan out of the Ginnie Mae mortgage-backed securities pool to offset the lost interest. Smaller companies lack the funding to do this and take deeper losses on extended forbearance programs as a result.
"Many of the small servicers we talked with stated that the cost of the new forbearance program may force them out of the servicing business," the MBA wrote in its letter.
The huge trade group recommended the FHA reimburse servicers at the rate investors receive on the MBS, or the pass-through rate instead of the smaller debenture rate. MBA also asked Ginnie to exclude loans put into a longer forbearance from affecting the servicer's delinquency ratio. Ginnie can pull work from a servicer if its delinquency ratio rises too high.
After the MBA and roughly 15 smaller services met with Ginnie and the FHA on Aug. 17, the trade group sent a letter to members explaining concerns and claimed to have obtained a commitment from HUD, pledging it would "devote staff to evaluating alternatives."
"FHA has met with the MBA and a group of smaller servicers to understand their concerns and discuss solutions," a HUD spokesman told HousingWire Friday. "No decision has been made as to whether we can or will make any changes, but we are looking into the issues they have raised."
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