MBA: FHA Servicers Need Clear Ranking Test

Federal Housing Administration servicers need a "bright-line test" to ensure that they do not fall into the agency's lowest loss mitigation ranking and incur penalties averaging $277,000 per loan, according to the Mortgage Bankers Association."The severity of the penalty and the lack of clear protections for good performers create significant uncertainty in the marketplace that may further erode FHA's market share," the MBA warns in a comment letter on HUD's loss mitigation proposal. In 1998, Congress directed the Department of Housing and Urban Development to penalize servicers who failed to help troubled borrowers avoid foreclosure. The penalty is three times the FHA average claim, which was $92,254 in 2003. Under the proposal, HUD would rank servicers quarterly, and servicers with the lowest rating would get hit with a penalty. "We believe it is imperative that HUD reconsider an exemption for servicers that have demonstrated systematic, overall compliance with HUD's loss mitigation rules through their Tier Rankings," MBA says.