A coalition of six organizations representing mortgage companies and borrowers sent a letter to Federal Housing Administration (FHA), is advocating for an extension of the current loss reduction waterfall until February 2026 while revisions to the agency’s service manual are discussed and implemented.
In late November, FHA proposed revisions to its permanent loss mitigation options based on lessons learned from its temporary policies implemented during the COVID-19 pandemic. At the time, the FHA indicated that it would give participants the current deadline of April 30, 2025.
“Because the draft manual covers many topics and includes new options, a window of time for implementation is necessary even though many parts of the draft are common,” the letter said.
The alliance includes American Bankers Association, Responsible Lending Center, Housing Policy Council, Housing banking association, National Consumer Law Center again National Mortgage Servicing Association.
The FHA proposal presents several options for borrowers struggling with mortgage payments, whether or not they can refinance. The draft includes partial private claims, a 40-year loan modification and a partial back-payment claim.
The coalition called on the FHA to maintain a simple loss mitigation process and avoid returning to a burdensome paperwork process. They also advocated a unified process to deal with all kinds of difficulties – job loss, natural disasters and more – to facilitate the implementation of mortgage workers.
The FHA proposal also introduces “monitors” to ensure home retention for borrowers who can’t keep up with monthly payments, such as a three-month payment plan, which trade groups say is better than using the full documentation process.
The coalition expressed support for the FHA’s strategy to reduce payments, which is consistent with the procedures used by the Fannie Mae again Freddie Mac.
“Studies have shown that focusing on reducing the monthly payment, which does not require a full assessment of the borrower’s financial situation, is more effective in reducing recidivism than meeting income-based targets,” the letter said.
The proposed FHA revisions come as mortgage delinquency rates have risen in recent quarters, particularly within the FHA portfolio, driven by macroeconomic stress, natural disasters, and rising property insurance premiums and taxes.
In early December, the FHA announced the implementation of modern borrower commitment procedures, which allow remote and electronic communication between mortgage lenders and defaulting borrowers. This program aims to increase borrower collaboration, building on the success of remote communication during the COVID-19 crisis.
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