FHA to Accept Electronic Claims

Loan files for single-family mortgages insured by the Federal Housing Administration will be a page or two lighter under a new directive eliminating paper mortgage insurance certificates.

Effective Nov. 20, the FHA will no longer issue paper MICs when endorsing loans for insurance, Federal Housing Commissioner John Weicher said at the Mortgage Bankers Association's annual convention here.

Paper MICs also will not be necessary when submitting claims, Mr. Weicher said.

Lenders will be able to confirm electronically that a certificate has been issued.

The change will not only save a few trees, but also will save the government and lenders millions of dollars.

HUD issued more than 2 million paper certificates in the previous 12 months, including 1.3 million new MICs and about 700,000 duplicates. "That's two million documents you won't have to request, receive, file and track," Mr. Weicher said, estimating the savings to the industry at about $80 million in the coming year alone.

HUD also estimates the change should generate a savings to the Department of close to $10 million.

In that HUD previously required the original paper MIC or a paper duplicate to be submitted to the when a lender files a claim on defaulted mortgages, the move also should benefit servicers and holders of FHA loans. By discontinuing this requirement, lender can stop the staff-intensive process of ordering and tracking the receipt of the duplicate paper MICs.

The change is being driven by the dynamic nature of the mortgage industry, HUD said. With mortgages bought and sold with greater frequency, as well as the heavy consolidation trend of mortgage portfolios, the documentation associated with the mortgage process has becomes more cumbersome, and the need to update records and replace missing documents is now much more costly.

This switch does not change the basic mortgage insurance process. The mortgage insurance contract is not effective until the mortgage is endorsed for insurance by HUD. Mortgage lenders participating in the FHA's single-family mortgage insurance programs will be able to confirm the insurance endorsement status of a mortgage via HUD's "FHA Connection" application on the Internet.

In his talk at the MBA conference, Mr. Weicher also said the FHA is now tracking sales on the web to better enforce its anti-flipping rule. The agency will not insure a loan on a property that has been sold twice in the previous 90 days.

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