FHA weighs changes as servicing issues persist

Origination projections are rosy and forbearance rates are improving, but larger loan performance issues remain, particularly in the government-insured home loan market.

That may have caused Federal Housing Administration officials to move ahead with a proposal that has long been in the works to streamline its complex and specialized servicing practices.

The plan, which is being released for a 60-day comment period, includes a revision of the FHA's loss mitigation waterfall, a scaling back of documentation requirements for trial payment plans, and increased alignment with broad market practices through the modification of allowable fee structures, in addition to other measures.

Mortgage companies are expecting to have to process more servicing than usual, given that the economy is expected to contract this year, albeit not as much previously anticipated.

Fannie Mae's most recent forecast, for example, suggests gross domestic product will fall by 4.2% in 2020. Previously, the government-sponsored enterprise forecasted a 5.4% decline in GDP.

So while low rates have spurred an origination boom that is insulating housing and mortgages companies from a decline in the economy, the coronavirus-related spike in overall delinquencies and forbearance may take some time to reverse. In just one month, that spike erased more than four years of declines in the overall delinquency rate, according to CoreLogic.

Housing advocates have expressed some concern that the industry could make too much haste to process foreclosures in bulk when forbearance periods end, and have warned that such action could lead to procedural mistakes that could be harmful to borrowers.

There are persistent uncertainties about the outlook for delinquencies due to the temporary federal policies both the FHA and government-sponsored enterprises have put in place to address the pandemic.

Processing flexibilities Fannie Mae and Freddie Mac introduced to mitigate coronavirus-related risks were recently extended to Aug. 31, when a foreclosure and eviction moratorium pertaining to their loans is currently scheduled to end as well.

The FHA said the coronavirus-related contingencies it has put in place for servicing will not be impacted by the streamlining of broader policies.