FHA Escrow Proposal Worries Lenders
When the nation's top mortgage servicing executives gather here starting Feb. 20, many will be eager to talk with Federal Housing Administration officials about some proposals that could pose big challenges for the management of FHA loans.
Of particular concern is a plan that would require FHA servicers to manage borrowers' condominium and homeowners association dues via escrow accounts.
J.K. Huey, senior vice president at IndyMac Bank and chairwoman of the MBA's loan administration steering committee, told MSN that escrowing for homeowners associations and condo fees would be unworkable.
She noted that there are some 250,000 registered condo and homeowners associations, and an unknown additional number that are not registered. Finding and maintaining a payee database for such a large network is not feasible, she said, especially since the payee is often the association's treasurer, a position that often changes each year.
In addition, many associations currently do not have the means to accept electronic payments from lenders.
While there are a large number of property tax and insurance payees, an industry of third-party providers has grown up to help servicers manage this burden. No such vendor industry exists today for condo and homeowner dues, and it's not clear if third-party providers of tax and insurance tracking could even provide such a service for condo and homeowners associations.
In addition, servicers will face additional costs related to making advances for condo and association dues.
"We prefer no such mandate," Ms. Huey said of the proposal to require FHA lenders to escrow for association dues. "It's going to be a considerable cost for lenders. It's literally going to be impossible for us to monitor."
In addition, FHA servicers would like the FHA to eliminate a requirement for a "face-to-face" meeting with seriously delinquent borrowers who live within 200 miles of their servicing office. Already, Ms. Huey noted that the FHA has clarified the requirement to exclude a bank's branch offices from the 200-mile radius.
But with all the loss mitigation technology and communications capability that exists today, servicers believe the face-to-face meeting requirement is unwarranted.
Ms. Huey said that servicers fear for the general safety of employees sent out to meet with troubled borrowers.
"We just don't know how people are going to react these days when someone goes to their door," she said.
Servicers also face a potential conflict with the FHA over a requirement relating to partial claims on FHA loans. The FHA wants servicers to return recorded documents within 60 days, but many recording offices are not providing fast enough turnaround time to meet that deadline. The MBA would like to have the requirement set at 60 days after documents have been received from county governments that typically manage recordation of land records. Ms. Huey noted that everyone working with the mortgage industry has been challenged by the immense volume of refinancing in recent years. And the industry has no way of controlling when local governments will return documents.
"Some recording offices are taking more than a year to get recorded instruments to us," she said.
In addition to HUD-related issues, Ms. Huey said the loan administration steering committee is working closely with state mortgage banker associations to monitor the effect of laws designed to discourage lending abuses on the mortgage banking industry.
Copyright 2005 SourceMedia, Inc. All Rights Reserved. http://www.sourcemedia.com http://www.mortgageservicingnews.com