Loss Mitigation

Written By: Bonnie Wilt-Hild

The use of the FHA and VA mortgage insurance programs has been on the rise since the great implosion of 2007 and most recent us several lenders embracing Rural Housing programs as well. As a mortgage underwriting employed on a full time basis by a bank as well as an industry educator who teaches program guidelines for these products for FHA Online University, I have seen literally thousands of people, industry professionals, government agencies and lender groups sign up for and participate in training for these programs in order to become proficient with the government lending product types.

Need FHA Training? CLICK HERE: http://www.FHA-Classes.org

Over the past five years, the market has embraced these products as the only game in the market where financing options for borrower with less than 720 credit scores and substantial assets are concerned and have training origination staff, processing and underwriting staff to articulate the programs. The staff they left out of the loop was the collection or loss mitigation department and by FHA and VA standards, this group is a group that also should have been prepared for the possibility of collecting a delinquent loan which an organization may now own because repurchase was required. I say this because after learning these guidelines, I think I am safe when I say, the regulation required by the Federal Housing Administration alone where loss mitigation efforts are concerned is staggering.

Very recently, my legal department contacted the residential department regarding a HAMP modification that was completed last year and the issue seemed to be if the document was completed on the correct form. As it turned out it was not and after some research I determined that FHA required a multi-state loan modification agreement indicating a continuous fixed rate for the modified product to be used when completing HAMP modifications. Simple fix right? Nope that was just the beginning. A couple of date later it was determined that the borrower had a significant escrow shortage which also needed to be cured and when advised of the increase in payment the borrower informed us that there was no way possible he could afford such an increase. When further research was done, it was determined that the escrow analysis should have been completed at the time of the HAMP modification but was not because, quite simply put, no one realized it was a requirement. With a little more research we determined we were able to capitalize the shortage to eliminate an increase in payment for the borrower but again, this determination was founded behind the eight ball which is where we have stayed throughout the process. I would love to say this is the only case with which we have had an issue but it’s not and the issues have gotten much larger with true delinquencies and overall loss mitigation procedures.

Need FHA Training? CLICK HERE: http://www.FHA-Classes.org

So after all of this I decided that it would be good to know the policy and perhaps put some into place for the loss mitigation as well as legal and servicing departments because quite frankly overall loss mitigation involves all three of these divisions, and conversely, it’s super
awesome if they communicate with one another where any particular case is concerned. After looking into things I determined that I would need to consume some 300 pages or so of facts, policy and procedure where the principals of FHA loss mitigation is concerned in order to be up to date on the requirements as set forth by HUD. People, that is a lot of information and after re reading it, it is still a lot of information to disseminate. I can tell you that at this point I have a handle on it and it comprises functions that are not strictly limited to getting the loan current but methods which must be employed by the lender throughout workout depending on which option the lender chooses. For instance, if it appears that the reason for default is curable then the lender must implement strategies which would fall under retention provision which could include informal or formal forbearance agreements, loan modification, partial claim or a combination of 2 or more of these strategies. If default appears to be imminent and by this there is no reasonable means by which the mortgagor can maintain the monthly payments on the mortgage then disposition methods must be employed. These can include Deed in Lieu options, pre foreclosure sale options or straight foreclosure should you have a borrower who doesn’t wish to cooperate. Along with any of these options there are several functions which must be completed by the lender including monthly reporting in FHA’s Single Family Default Monitoring System, monthly contact with the borrower, financial analyses where the borrower is concerned and so on. Additionally, FHA is very specific about the time frames afforded to lenders where complete some or all of these functions are concerned and if or not an extension of time may be request to complete the functions. In short, a lot of information to acquire.

Need FHA Training? CLICK HERE: http://www.FHA-Classes.org

In closing, I want to simply remind even the smallest of lenders that in today’s economical environment you may find yourself in a position where the repurchase of a particular loan looms on the horizon. Don’t wait until the loan is in your portfolio before your collection department picks up the handbook and mortgagee letters necessary to determine how loss mitigation actions must be handled according to HUD’s directive, it could cost your organization a substantial amount of money at that point if something is missed. Remember there is no time like the present. Have a great week.

About The Author

Bonnie Wilt-Hild - As an NAMP® staff writer, Bonnie currently serves as a senior instructor for FHA Online University (www.FHA-Classes.org) as well maintains a full-time mortgage underwriting position as the Senior FHA DE Underwriter for a major lending institution. With over 25+ years of senior-level FHA/VA Government underwriting experience, Bonnie is considered the "Queen of FHA Loans". If you're interested in becoming a writer for NAMP®, please email us at: contact@mortgageprocessor.org.

Opinion-Editorial (Op-Ed) Disclaimer For NAMP® Library Articles: The views and opinions expressed in the NAMP® Library articles are those of the authors and do not necessarily reflect any official NAMP® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMP®. Nothing contained in this article should be considered legal advice.