By Nicholas Corpuz, Senior Director of Compliance
January 30, 2023, was a big news day for mortgage servicers. Two separate announcements were made, significantly impacting how Servicers will handle COVID-19 loss mitigation moving forward.
President Biden announced that he will end the COVID-19 National Emergency on May 11, 2023. FHA, VA, USDA, Fannie Mae, and Freddie Mac guidelines all state that initial COVID forbearances will end when the National Emergency ends and that they should not extend six months beyond the end of the National Emergency. Tentatively, that date is November 9, 2023.
HUD issued (Mortgagee Letter 2023-02), which vastly streamlined the loss mitigation options for FHA mortgages. The major change is the temporary suspension of FHA-HAMP, Standard PFS, and Standard DIL programs and the new requirement that servicers must now place all loans, regardless of hardship, through the COVID waterfall options.
The combined announcements will have Servicers rushing to assess how their operations will handle loss mitigation waterfalls in the coming weeks. HUD continues to use COVID-19 Recovery Options to protect borrowers and reduce losses to the Mutual Mortgage Insurance Fund. (“MMIF”). The COVID-19 Recovery Options have proven successful in helping borrowers bring their mortgages current and providing significant payment reductions.
HUD has temporarily extended the program to allow as many borrowers as possible to be evaluated for these options. This will reduce complexity and costs. Accordingly, HUD expands COVID-19 Recovery Options for all borrowers in default or imminent default, including non-occupant borrowers, regardless of the reason for default. The allowable partial claim is being expanded to 30% of the borrower’s unpaid principal balance as of the default of the first partial claim.
From a technical perspective, Brace’s waterfall engine can be easily updated to accommodate the changes. The HUD announcement temporarily suspends FHA-HAMP, Standard Preforeclosure, and Standard Deed-in-Lieu options.
Brace’s waterfall includes the ability to timebox and disable certain programs.
Luckily, the majority of the changes in ML 2023-02 are a requirement to remove or suspend certain rules. This makes change management fairly simple.
Where HUD has rules changes (i.e., updating the allowable partial claim amount), Brace can manage this change with a rules update which, given Brace’s low-code rules builder, the change is as easy as a few keystrokes.
Internally to Brace, the majority of the effort will be spent on testing since changes in the waterfall engine are seamless.
Below is a summary chart of high-level hierarchy changes and how they affect standard workout options.
