Citing concern from the mortgage industry, the Federal Housing Administration is abandoning a plan that would have established a deadline for lenders and servicers to file FHA insurance claims.
In July, the FHA proposed the creation of a deadline for the filing of FHA insurance claims.
Under the proposal, the FHA would have required lenders and servicers to submit claims three months from the point they obtain a marketable title on the subject property or successfully sell the property to a third party.
In a note sent to all FHA-approved lenders and servicers on Friday, along with a companion update to the Federal Register, the FHA said that it is withdrawing that proposal.
In the Federal Register, the FHA said the withdrawal was due, in part, to “public comments expressing concern” over the implementation of the proposed deadline.
According to the FHA, the deadline was proposed because many lenders and servicers delay filing FHA insurance claims, choosing to wait and file large numbers of claims together.
At the time, the FHA said that the costs associated with the delayed claim filing, coupled with the large number of claims filed simultaneously, place a strain on the FHA’s resources.
According to FHA’s original proposal, its current rules are “silent” when it comes to a deadline for when an insurance claim can be filed with the FHA.
The FHA also said that under the current system, the bundling of claims “negatively impacts” its ability to project the future state of the Mutual Mortgage Insurance Fund, as well as the FHA’s ability to fulfill its statutory obligations to safeguard the MMIF.
According to FHA data, the percentage of claims filed more than 180 days after a marketable title was obtained has risen from 4.88% of total claims in fiscal 2008 to 20.45% in 2014.
“Establishing a timeframe in which mortgagees must file FHA mortgage insurance claims will bring better predictability to FHA,” the FHA said in its proposed rule. “The ability to better project capitalization of the MMIF will lessen the likelihood of FHA needing to obtain a capital infusion to support the solvency of the MMIF.”
Now, partially due to the response it received, the FHA is pulling back its plan, for the time being.
In the Federal Register, the FHA notes that it may still put forth a revised maximum time period for the filing of an insurance claim, adding that will solicit public comment on any new proposed deadline.
The Community Home Lenders Association welcomed the FHA’s decision.
“The Community Home Lenders Association commends FHA for dropping its proposal to establish deadlines on filing FHA claims,” the CHLA said in a statement. “FHA’s action to drop this proposal will help maintain full lender confidence in the reliability of the FHA guarantee, and remove any disincentives for servicers to pursue actions to keep distressed borrowers in their home.”