The Rural Housing Service is currently seeing volume levels of mortgage recovery advances, or MRAs, coming in at a monthly pace equal to the entire total seen before the COVID-19 pandemic.
Similar to the partial-claim procedure of the U.S. Department of Housing and Urban Development, the RHS had processed approximately 2,500 MRA requests from servicers pre-pandemic. Today, the agency is fielding 2,000 to 3,000 such applications on a monthly basis, according to Richard Kane, deputy director, servicing branch, USDA Rural Development.
Recognizing that loss mitigation would increase as a result of the pandemic, RHS, a division of the U.S. Department of Agriculture, introduced a pilot program, “changing the way we look at the partial claim,” Kane said. Little has changed procedurally, except servicing of the claim now falls to the loan servicer instead of the USDA.
“It really gets us out of the servicing business and lets servicers do what they do best,” Kane said at the Mortgage Bankers Association Secondary & Capital Markets Conference in New York on Monday.
In the pilot, servicers continue to file partial claims on behalf of the borrower, with payment issued to them from the USDA, Kane explained. No interest or fees accrue.
“Except it’s not creating a junior lien with them,” he said. “It’s going to stay as a servicing advance. The servicer will retain that balance on the borrower’s account and then they would collect the money from the borrower whenever the loan refis or pays off.”
It also expedites payment assistance to the borrower, with no recording fees or junior liens involved. Servicers determine borrower eligibility.
But there’s still some confusion in the industry as to whether loans with attached MRAs qualify for refinancing. According to Kane, they are eligible, but with exceptions.
“For more streamlined products, you can’t include it,” he said, acknowledging the confusion as a “challenge” that needs to be addressed.
“We can’t leave that MRA hanging out there. It’s going to have to be paid off as part of the refinance. But for the traditional loan product, it is eligible,” he said.
During the session, Kane also discussed the performance of RHS’s single-close construction offering, which was unveiled shortly before the arrival of COVID-19. The product is a combination construction-to-permanent loan that can be closed in one signing and guaranteed by Ginnie Mae immediately.
While it has been popular with lenders using it, the RHS has yet to see uptake at levels it hopes to achieve.
Noting the number of dilapidated homes in parts of rural America, Kane pointed out how the product would help many achieve homeownership.
“It was hard to get inventory out there for our borrowers, so I think this really allows us to help those borrowers get the lot [and] build the house,” he said.