The Department of Housing and Urban Developing has issued a proposed rule that would implement a 1998 law that requires Federal Housing Administration to impose penalties on servicers that fail to take loss mitigation actions to help troubled borrowers avoid foreclosure.Under the proposal, FHA servicers who fall into the lowest tier of loss mitigation performance (Tier 4) could be subject to treble damages (three times the amount of a loan plus reimbursable expenses). Industry officials consider the penalties excessive. However, only three FHA servicers were ranked as Tier 4 as of April 2003. "While any mortgagee that has a duty to engage in loss mitigation and fails to do so is subject to treble damages, this rule provides appropriate notification that HUD will focus on Tier 4 mortgagees," the proposed rule says. The comment period ends June 14.

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