HUD Seeks to Expand Treble Damages

The Department of Housing and Urban Development has sent a rule that could inflict severe penalties on FHA servicers to the Office of Management and Budget for final clearance.The final rule sets the parameters for charging treble damages, or three times the loan amount, if a Federal Housing Administration servicer fails to take appropriate loss mitigation actions to help a delinquent borrower avoid foreclosure. On a $90,000 loan, servicers could face a $270,000 penalty for loss mitigation violations. HUD has been slow to implement the treble damages rule that was mandated by Congress in 1998 -- when the FHA's loss mitigation program was just getting started. The proposed rule, issued for comment in early 2004, limited treble damages to a handful of servicers with the lowest loss mitigation rating. However, lenders contend that treble damages are excessive and that levying such fines would make FHA servicing less attractive.