On April 19, HUD announced wholesale changes to the loss mitigation section of the FHA Single Family Housing Policy Handbook 4000.1. The changes that the FHA is making to Section III, the servicing and loss mitigation section, brings the FHA in line with other investors /insurers, streamlines servicing policies, and makes the loss mitigation process easier for borrowers and servicers.
Up until now, the FHA required borrowers to provide extensive documentation for loss mitigation applications. With these changes, they will join other investors in moving to a model that uses information already available to the servicer, such as property value.
The most extensive change streamlines the eligibility requirements for the FHA waterfall. Borrowers will have fewer requirements to qualify for loss mitigation options.
Servicers will have to rework their existing waterfalls to ensure compliance with the new FHA guidelines. It is likely that due to this new guidance, mortgage servicers will be able to remove requirements from their existing waterfalls. Before implementing any changes, servicers should validate their interpretation of these changes with counter-parties, industry colleagues, and with HUD itself.
HUD will be offering pre-recorded webinars to discuss the Handbook updates in the coming days. The effective date of these changes is August 17, 2021.
If you are a servicer or a bank interested in using Brace to help digest and implement these changes for your operation, please contact us at the link below.