HUD raises fines for lenders who fail to assist troubled borrowersmortgagepress.comloss mitigation, HUD penalties, FHA mortgages
The U.S. Department of Housing and Urban Development has
published a final rule that dramatically increases the amount of
damages HUD can seek against FHA lenders that fail to engage in
loss mitigation techniques. Loss mitigation options enable many
homeowners who are in default on their FHA mortgages to avoid
foreclosure and remain in their homes. Currently, the maximum
penalty that can be imposed on lenders is $6,500 for each
violation, up to a limit of $1.25 million for all violations
committed during any one-year period. This new penalty provides for
additional damages of three times the amount of any FHA mortgage
insurance benefit claimed by a lender and is not subject to the
current limitations.
"We are working to ensure that every FHA borrower is afforded
the opportunity to explore all options to keep their homes," said
HUD Secretary Alphonso Jackson. "Our lenders must make every effort
to help people stay in their homes, help to stabilize neighborhoods
and prevent losses to FHAs insurance fund."
In recent years, HUD has strived to ensure that lenders work
with FHA-insured homeowners in default to see how they may qualify
for one of HUDs loss mitigation options. In the past three fiscal
years, almost 230,000 defaulted FHA borrowers benefited from loss
mitigation, more than lost their homes through foreclosure. This
new rule will build upon those efforts by specifically addressing
how HUD will be empowered to penalize lenders who fail to
successfully engage in loss mitigation techniques and by
specifically defining the criteria used to evaluate a lender's
performance. Failure to engage in loss mitigation is defined as a
servicing lender's failure to:
"Evaluate a loan for loss mitigation before four full monthly
mortgage installments are due and unpaid; and
"Determine which, if any, loss mitigation techniques are
appropriate and take appropriate loss mitigation actions.
HUD will use its Tier Ranking System to measure a lender's loss
mitigation efforts on a portfolio-wide basis and rank the lender
based on the ratio of loss mitigation actions to foreclosure
actions. HUD intends to focus its efforts on lenders ranked in the
lowest tier. Loss mitigation techniques include the following:
"Special forbearance. The lender arranges a
repayment plan based on the borrower's financial situation and
possibly provides for a temporary reduction or suspension of
payments.
"Mortgage modification. The lender capitalizes
the mortgage delinquency, usually reducing the monthly payment
and/or extending the term of the mortgage.
"Partial claim. The lender obtains a one-time
payment from the FHA insurance fund to bring the mortgage
current.
"Pre-foreclosure sale. The borrower avoids
foreclosure by selling the property for its appraised value, and
these proceeds are less than the amount necessary to pay off the
mortgage.
"Deed in lieu of foreclosure. The borrower gives
the property to the lender. The borrowers lose their house, but do
not damage their credit rating as much as a foreclosure would.
For each of these options, borrowers must meet certain
qualifications based on their circumstances.
For more information, visit www.hud.gov.
