Mortgage

FHA announces changes to CWCOT program

Ginnie Mae, USDA and VA leaders also provide updates on government loan servicing

For government agencies, the road to a streamlined process is a hard slog through outdated technology, requiring battles with regulators and legislators.

But that doesn’t stop them from trying.

At a panel on government loan servicing at the Mortgage Bankers Association Servicing Conference, leaders from USDA, the Federal Housing Administration, Department of Veterans Affairs and Ginnie Mae outlined the steps each agency is taking to better serve borrowers and servicers.

Dror Oppenheimer, senior advisor to the assistant secretary for housing — federal housing commissioner at the Department of Housing and Urban Development, announced significant changes to the FHA’s Claims Without Conveyance of Title (CWCOT) program, which have been posted on its Single-Family Housing Drafting Table.

Those changes include:

  • Providing for a second appraisal once it becomes vacant
  • Expanding the number of states for marketing services and auction services into the judicial states
  • Modifying their haircut structure in a way that is more specific to the value of that property
  • Changes to reimbursement for property preservation and eviction expenses

“We think these changes will improve the take-up rate of the CWCOT program, which has already gone from 25% to 75%,” Oppenheimer said. “We think this is going to expand way beyond the 75% and provide real benefit for servicers and the FHA. We look forward to hearing back from the industry.”

The panel, which featured Michael Drayne, acting executive vice president of Ginnie Mae, Richard Kane of USDA, Andrew Trevayne, assistant director for loan and property management at VA, highlighted each of the agencies’ actions around IT modernization and updating their processes and procedures, but each leader acknowledged the long timelines it would take to accomplish change.

“The most important thing we [Ginnie Mae] can do to modernize our platform is to break pool-level functions into loan-level functions,” Drayne said. “This is an enormous undertaking for us, it’s a long-term proposition. This will affect almost everything about the architecture of the programs we already have and will take a number of years to complete.”

For their part, the FHA has been running a pilot with eight servicers that automate and streamline the supplemental claims process, and they are looking to roll out that to other servicers this year.

“Our portfolio has grown 100% in the last 10 years, but our technology is 30 to 40 years old,” FHA’s Oppenheimer said.

For the USDA, Kane explained how the USDA’s technology fee, implemented in January, is earmarked for technology upgrades for the rural housing program and said he will do his best to move some of the money to servicing.

“Servicers do a good job creating vast systems to help borrowers, then once you get to the claim point, you have to log in and enter each loan one by one. It isn’t really feasible at that scale. I’d like to use tech to have a batch process, and help servicers do what they do best more efficiently,” Kane said.

To deliver better service, the VA is undertaking an organizational change in their structure and also hired a complete regulation team to look at regulations it might need to update or change. Trevayne said the VA is also focusing on data analytics on all its business lines.

On loss mitigation, Oppenheimer acknowledged that the process requires too much documentation from borrowers who are going through a hardship and the agency is now focusing on getting borrowers to loan modification and payment reduction quicker, instead of relying on the waterfall approach.

Ginnie Mae is looking at ways to improve loss mitigation but always has to be mindful of what representations have been made to investors, Drayne said.

“It’s not uncommon for things to arise where someone has an idea and it is from the standpoint of the servicer or borrower, but it is different from what the prospectus says. We can’t change the prospectus. I think it’s about having a good level of collaboration and dialogue about things that are being contemplated, and working together on different parts of the chain,” Drayne said.

Drayne outlined three priorities for improving the framework of policies that make up the prudential standards for the servicing industry: capital and liquidity standards, stress test regimen and resolution planning.

“With FHFA having taken this step on capital and liquidity, we’re not looking to do separate innovations on our own in the foreseeable future. We’ve got a lot to focus on in stress testing and resolution planning,” Drayne said. “Last year, we instituted the practice of having in-depth conversation with each of our nonbank issuers focused on liquidity, we thought it went great and published a paper on it.”

Ginnie Mae is meeting with nonbank issuers again this year, but will also talk about stress testing and give some specific results on what its stress-testing model generated. Drayne said his intention is to build a model that is useful in anticipating adverse economic events. “I’m not anticipating making these requirements part of the guide, we just want to continue to have dialogue that is useful.”

In a Q&A at the end of the session, Oppenheimer was asked to share his thoughts on private companies helping to guide servicers through the FHA disposition process.

“I think where we want to be is to provide certainty to servicers. To the extent that technology can do that and speed up the process, we’re all for that,” Oppenheimer said.

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