MBA Requests HUD to Revise Servicing Penalty Structure

The Mortgage Bankers Association (MBA) is requesting that the Department of Housing and Urban Development revise the penalty structure for servicers who fail to initiate foreclosure by the agency prescribed deadline.

Over the years, HUD has placed servicers under increased performance pressure by reducing the timeframe to initiate foreclosure from 12 months to 6 months according to the MBA.

“This change has provided HUD with significant cost savings, but has increased the risk for servicers that must now manage loss mitigation and foreclosure timelines concurrently,” said John Courson, MBA President and CEO.  “As partners with FHA, we believe it is appropriate and desirable to create a penalty structure that is commensurate with the loss to FHA. Servicers who fail to perform should be required to make FHA whole for any losses resulting from their delay in getting the property conveyed to HUD.”

The MBA is requesting a maximum penalty of 30 days of interest for each month the initiation of foreclosure is delayed because of the increased complexity of managing both the loss mitigation and foreclosure timeframes and their competing objectives.

HUD currently curtails debenture interest when a servicer doesn’t begin a foreclosure within six months of default. The MBA feels the penalty is arbitrary and in need of revision.

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