Government LendingHousing Market

MBA wants tweaks to FHA’s second chance program

A spokesperson from the FHA said that feedback is currently in review and that "it would not be possible to speculate on any potential changes at this time"

The Mortgage Bankers Association (MBA) sent a letter to the Federal Housing Administration (FHA) last week asking the administration to shed light on some of the changes made to its Claims Without Conveyance of Title program.

Per the MBA’s communication, its members want the FHA to clarify the timeline for properties in a redemption period, reimburse costs associated with changes made to the program and explain whether properties in conveyance condition can be conveyed during the post-foreclosure sales period to the FHA.

In May, the administration, in a bid to increase housing supply, announced several additions to its CWCOT program, including an exclusive 30-day listing period for governmental entities, owner-occupant buyers, and nonprofits to bid on foreclosed, formerly FHA-insured properties. The announced changes must be implemented by Aug. 3, 2022.

The FHA gave the mortgage industry 30 days to provide feedback. A spokesperson from the FHA said responses received currently are under review and “it would not be possible to speculate on any potential changes at this time.”

The MBA said changes to CWCOT, which is dubbed the “second chance program,” will require third-party vendors to provide purchasers with access to a property for 15 days after it goes under contract. The MBA said there may be risks associated with the requirement, such as vandalism.

To mitigate risk, the MBA called on the Department of Housing and Urban Development to reimburse vendors for accompanying prospective purchases during the inspection.

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The MBA also said the FHA needs to address the redemption period — which varies from state to state and gives a borrower one last opportunity to reclaim their property. The trade group wants the administration to clarify when the exclusive listing period begins in states with a redemption period.

The MBA wants the sales period for properties bound by a redemption clause to begin once the redemption expires.

Additionally, members of the trade group said FHA’s communication currently implies a property must sit at auction for a total of 90 days. The MBA wants clarity as to whether a property in conveyance condition can be conveyed to the FHA and accepted during the post-foreclosure sales period.

Changes to the second chance program first were announced by the Biden-Harris administration last year as a way to increase supply of single-family homes available to families.

Lopa Kolluri, principal deputy assistant secretary for housing, said in a May statement that establishing exclusive listings for targeted buyers “is critical” to help families achieve homeownership.

“This policy change is critical as the nation continues to address the challenges of a real estate market in which home prices are high and the availability of affordable housing supply is low, making it difficult for individuals and families to achieve the dream of homeownership,” Kolluri said.

A post-foreclosure sale is a last-ditch effort for a lender to sell an FHA-insured foreclosed property to an independent third-party prior to conveying the property to HUD. If sold to a third party, HUD pays insurance benefits for losses to the lender.

The program was designed to expedite the disposition of foreclosed-on properties and reduce the amount of time a property sits vacant. The FHA said the program is beneficial to lenders and the department because it reduces costs for both.

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