Loan Modification

Affidavit Debacle Skips FHA

By Peter G. Miller

Given the current spat of foreclosure moratoriums because of alleged lender processing failues, it’s not surprising that FHA Commissioner David H. Stevens has issued a new letter saying that FHA lenders must uphold tough standards when processing loans.

What’s a surprise is that HUD is not using the current turmoil to showcase it’s foreclosure prevention efforts or the sensible FHA guidelines which limit foreclosure risk for both borrowers and the program.

By way of background we now know that tens of thousands of private-sector foreclosure affidavits have been signed by lenders without fully reviewing the data such paperwork contains. This is a huge problem because it may be that the information within an affidavit is wrong, something which is supposed to be prevented by a careful study of the document before submitting it to a court. Seen another way, it’s possible that some homeowners have been unfairly foreclosed.

“HUD,” says Stevens, “holds mortgagees accountable for their servicing practices in order to protect the public trust and the FHA Insurance Fund. FHA-approved servicers are obligated to comply with all applicable laws and regulations. When a servicer fails to comply with HUD?s policies and procedures, HUD will take appropriate action. Servicers that violate HUD statutes, regulations, handbook requirements or mortgagee letters may be required to repay loss mitigation incentives or indemnify HUD for any losses. In addition, mortgagees may be referred to HUD?s Mortgagee Review Board for appropriate sanctions.”

Cure Rate

The bigger point that HUD ought to be making is that it has a terrific record preventing foreclosures. According to HUD, in fiscal 2009 ?82.7 percent of the HUD-held loans that are 90 days or more delinquent were brought under control.?

Instead of robo-signing documents and throwing people out on the street, the HUD and the FHA take the time to work with every borrower who is in danger of losing their home. Even in the worst cases — those borrowers who are at least three months late — almost 83 are saved from foreclosure.

Of course, good folks at the FHA and at HUD don’t get multi-million dollar bonuses or stock options. They just do the job they’re supposed to do.

The contrast between the FHA loan program and the private sector seems to be getting wider. The public, not unwisely, is running toward the FHA mortgage program because that’s where they can find sane financing.

The Federal Financial Institutions Examination Council (FFIEC) reports that “for home purchase lending, the FHA?s share of first-lien loans increased from 7 percent in 2007 to 26 percent in 2008 and to 37 percent in 2009.”

The argument here is not that HUD or the FHA program are perfect; rather it’s the idea that while many in the political silly season would eliminate the FHA in the drive toward a smaller government — and while such an thought may sound momentarily attractive in theory — in practice it’s programs like the FHA which have prevented the current financial disaster from being far worse.

Full post as published by FHA Mortgage Guide on October 11, 2010 (boomark / email).