The Mortgage Bankers Association has declared that the "punitive" penalties the Department of Housing and Urban Development charges servicers for failing to initiate foreclosures on a timely basis are "arbitrary in their severity" and need to be changed.
In a recent letter it sent to FHA commissioner David Stevens, MBA says, "There is currently no relationship between HUD losses as a result of delays and the penalties assessed to mortgagee participants for failing to initiate foreclosure on a timely basis."
The trade group adds that it is "unclear" how HUD is harmed by a short delay of foreclosures.
MBA's complaints come as the nation's servicers are under intense federal and state scrutiny for cutting corners on foreclosures.
The Federal Housing Administration has compressed the timeframe for initiating foreclosures to six months after default, MBA points out, which has resulted in significant savings for FHA. But the penalty for missing that deadline can be more severe in one state than another — depending on how long it takes to complete the foreclosure process.
The penalty for a one-day delay in initiating foreclosures in New York, New Jersey or Pennsylvania is much greater than in Texas, Virginia or Alabama, the trade group says. If the property is in New York, the penalty could be $4,000 higher than an Alabama mortgage with the same interest rate and size.
MBA president and chief executive John Courson recommends a way to change the penalty and urges HUD to act. "A revision is appropriate in light of the increased complexity of managing both the loss mitigation and foreclosure timelines and their competing objectives," Courson says in the Oct. 20 letter sent to Stevens.
FHA officials had not responded to requests for comment as National Mortgages News went to press time.
