The Federal Housing Administration (FHA) has announced a long-awaited proposal that could revolutionize how mortgage companies engage with borrowers in default. Published Monday in the Federal Register, the proposed rule is open for public comment and seeks to update the Department of Housing and Urban Development's (HUD) existing regulation that mandates in-person meetings with defaulting borrowers.
The new proposal comes as a response to technological advancements and changes in borrower preferences. If adopted, it would:
Enable Remote Communication: Mortgage servicers could use electronic and remote communication methods to satisfy FHA's early default intervention requirements, leveraging the techniques successfully used during the pandemic.
Remove Travel Requirements: The proposal would eliminate the need for mortgage servicers to make at least one trip to the mortgaged property to schedule a meeting with the borrower, cutting unnecessary costs and time.
Expand Meeting Accessibility: It would also extend the meeting requirement to include borrowers not residing in the mortgaged property or those outside the 200-mile radius of their mortgage servicer or a branch office, increasing inclusivity.
The potential change follows the temporary waiver of the face-to-face meeting requirement in early 2020 due to the COVID-19 pandemic. The success of remote communication tools during this period demonstrated the efficacy of these methods and bolstered the case for permanent change.
According to the FHA, borrowers have increasingly shown a preference for electronic and remote communication options to discuss foreclosure prevention. The proposed rule seeks to cement the flexibilities employed during the pandemic, ensuring the continued provision of robust loss mitigation services.
FHA commissioner Julia Gordon, who signaled the agency's intention to update requirements earlier this year, has likely noted the unprecedented number of distressed borrowers assisted through remote means since the pandemic's onset.
While these proposals remain unofficial until finalized and cannot be used in connection with any FHA-insured mortgage, they represent a significant potential shift in HUD's regulations. The FHA encourages all interested stakeholders to review the proposed rule in its entirety and submit their comments through the methods outlined in the Federal Register. The deadline for comments is Sept. 29, 2023.
The proposal mirrors the broader societal shift towards digital communication and reinforces the importance of flexibility and adaptability in the housing industry. Adopting it may set a new standard for how mortgage companies interact with borrowers, balancing modern convenience with essential consumer protections.
