A Federal Housing Administration official on Thursday affirmed that the agency wants to help servicers hit pause on foreclosure proceedings in circumstances where relief is sought from the Homeowner Assistance Fund, and detailed some of the nuances involved in it.
Commenting on updates to frequently asked questions issued earlier, Matt Martin, director of the Housing and Urban Development Department’s national servicing center, laid out some instances when a foreclosure may be placed on hold for HAF recipients and applicants.
“The mortgagee may and is strongly encouraged to place a foreclosure action on hold for any of the circumstances described,” Martin said in a call with stakeholders on Thursday.
Those scenarios include a notification from the state HAF program that a borrower has applied for or received final approval for the funds, he said. How long the hold is, or whether the servicer may be called upon to terminate the foreclosure instead, could depend on the jurisdiction.
“Mortgagees may suspend or terminate the foreclosure proceedings depending on the state law or state HAF program requirements,” Martin said.
But mortgage companies have to apply for an extension of time to foreclose through HUD’s Extensions and Variances Automated Requests System if this occurs, since they will be penalized if they fail to meet certain foreclosure timelines determined by the FHA, Martin noted.
“It’s very important you do that so you don’t miss any deadlines that may cause you to potentially have curtailment issues,” he said.
The FHA also has certain reporting requirements for borrowers receiving HAF funds.
“Once a borrower is approved for HAF funds the mortgagee must report delinquency status code 78,” Martin said, noting that this should be recorded in the single-family default monitoring system module on the FHA Catalyst platform. FHA Catalyst is a system used by servicers and lenders that work with the FHA.
If a borrower is in loss mitigation and has qualified for HAF funds, mortgage companies must apply funds as permitted by the state.
“FHA permits the application of additional funds such as HAF to be used as a part of the borrower’s loan mod, or to reduce a partial claim amount if needed, or to pay the partial claim off, depending on the situation, including for the COVID 19 loss mitigation options,” Martin said.
If allowed by a state, HAF funds also could be used to pay off a partial claim, with the money submitted to HUD contractor ISN. When the amount is sufficient, borrowers who are delinquent can use the funds to bring their mortgage current without completing a loss mitigation option.
“If the borrower states they cannot resume their current monthly mortgage payment, then you must evaluate the borrower for available loss mitigation options in conjunction with the [permitted] use of those HAF funds,” Martin said.
A servicer that receives notification that a borrower has applied for HAF funds that could be used to cure a monetary concern related to FHA-insured reverse mortgages, such as a property tax payment, may also be able to suspend or terminate a foreclosure. In this case, servicers must request extensions using the Home Equity Reverse Mortgage Information Technology system using the Hardest Hit Fund timelines.
The FHA’s guidance comes amid broader efforts to coordinate responses of various agencies to servicing distressed loans in instances where borrowers have submitted applications for Homeowner Assistance Fund money.
“All agencies are now aligned on how servicers should process their loans when they are notified by the state HAF program that the borrower has applied for HAF,” said Marissa Yaker, managing attorney of regulatory affairs at the Padgett Law Group. “Servicers are strongly encouraged to place the foreclosure on hold, and now have the guidance on how to do the same.”
The Treasury Department, Consumer Financial Protection Bureau and National Council of State Housing Agencies plan to comment further on the matter at a meeting next week, she said.
Another entity that has released guidance related to foreclosures and the use of HAF funds is the government-sponsored enterprises’ regulator, the Federal Housing Finance Agency. That agency has called upon servicers of Fannie Mae and Freddie Mac to pause foreclosures for 60 days upon notification of a HAF application.