CRFS provides comments in response to HUD’s request for feedback on the Single-Family Loan Sale Program (SFLS Program)

In its request for feedback, the FHA indicated that it is particularly interested in public comments addressing the following issues (the CRFS feedback, which was delivered to HUD the first week of July, is reproduced below):

 3.0 Obstacles, Benefits, and Drawbacks

3.0.1 FHA Single Family Loan Sale Servicers

(1) What obstacles exist to participation in the Program and how can those obstacles be addressed?

  • Some Servicers feel that the criteria is too restrictive and eliminates more files than one would expect in terms of eligibility.
    • This actually was a deterrent for one Servicer in particular, where they decided to only participate in one of the sales as a result of the fallout they experienced.
  • The unpredictable sales schedule creates staffing and management issues. The industry would like a schedule created to provide better planning and scheduling.
    • This would help HUD as well due to their claims team not having sufficient staffing when the sales come up. It causes them to shift necessary resources to the sale, which in turn puts the other items they were working on behind, which is an unintended consequence with the current setup. (i.e. further delays the supplemental claim payments)
  • The changing criteria from sale-to-sale has been difficult to manage within the short window of time from when it’s released to when the criteria and lists begin to get submitted.

 (2) What factors are relevant to the decision to submit loans for claim payment through the Program versus alternative assignment options?

  • SFLS program is much easier than routine conveyance route with ICC and title requirements.
  • SFLS is typically less upfront costs and risk for the servicers.

(3) What, if any, monetary costs have been or will be incurred through program participation, including but not limited to, administrative and overhead costs?

  • IS/BA resources to pull reporting based on criteria eligibility to identify initial loan population and report the initial population to HUD.
  • IS/BA resources to re-validate the initial loan population remains eligible based on criteria and provide updated file to HUD confirming the eligible population and loans to be removed. (Approximately 1 month time lapse between initial reporting to HUD and update reporting.)
  • Claim filing resources to complete SFLS claims on loan population within a max 60 day window from sale date.
  • Default reporting resources to continue reporting SFDMS events (Must report from the month the loan is identified for inclusion in the sale until either (1) Loan no longer qualifies or (2) SFLS claim has been filed.
  • Coordination resource with the BPO Company to order and procure BPO’s on all properties included in the sale, delivering them electronically to HUD upon completion.
  • Document Procurement Resources to gather required Loan Servicing Comments, Payment Histories and Loan Collateral and Mortgage documents.
  • Resource to complete the Assignment/Endorsement requirements for each loan within the sale as well as the Goodbye Letters.
  • Resource coordinating the service transfer date to the new servicer, communicating with HUD what that date is and ensuring timely delivery of the Mortgage and Collateral files to the New Servicer upon the service transfer date.
  • Sufficient staff to comply with the Post-Claim Servicing responsibilities until the loan transfers to the New Servicer.
  • Invoicing resource to recoup advances incurred during the Post-Claim Servicing period from the New Servicer.
  • Servicers cost to participate, primarily BPO expenses, when HUD determines they are pulling a pool or loans that fall out of the program.
  • Loans that had claims filed under SFLS program (EDI’s) but fall out after the claim filing, the next claim process will be delayed until insurance is reinstated and due to technology constraints, a 2nd EDI is not possible resulting in manual claim submission and delayed payment by HUD.

(4) What challenges have been or will be encountered in assigning and delivering loans to the Program?

  • Tight timeframes, resource availability, access to the data, access/availability of BPO professionals
  • With inconsistent scheduled sales, the volumes tend to be higher than if loans could be submitted routinely through the program.
  • With previous sales, we’ve saw where the published sale start date for claim submission will be delayed; however, the end date has not been extended with that change in the start date.
  • The maximum interest that HUD will pay is 30 days following the eligible claim submission start date; however, you have a full 60 day window to actually file the claim. We feel the maximum interest payment should align with the maximum claim filing window.

(5) What are the benefits to participating in the Program?

  • Additional liquidation option for the Servicer, allowing the default asset to be moved out of the inventory at a quicker pace.
  • Homeowners have more flexible Loss Mitigation options with the new servicer which aren’t as confined to HUD’s requirements

(6) What are the greatest drawbacks involved in participating and filing assignment claims through the Program?

  • The repurchase portion of the sales are too open ended, causing many times the request to come back to the Mortgagee years after the same has taken place.
    • A few Servicers have had loans come back 2-3 years after the fact and HUD Asset Sales advises that they usually side with the purchaser even when the servicer shows there is no basis.
  • The unwind process when a loan falls out of the sale is difficult for the Servicers. They struggle with getting the insurance reinstated and being able to obtain a value for what is owed in order to bring the MIP’s back current.
  • Short timeframe adds stress to normal operations which at times results in unfavorable actions in order to meet deadlines. (i.e. HUD disallowing claimable costs on the initial claim payment, requiring more supplemental claims to be filed in order to recoup.)
    • FHA typically has a backlog of supplemental claims and are already a year behind, loan sales will cause that population to fall further behind.

(7) How and why, if at all, have any program participants changed, modified, or discontinued participation due to unanticipated consequences or drawbacks?

  • Inconsistent eligibility requirements and irregular sale timing makes it difficult for participants to staff accordingly and further, to properly manage the portfolio’s and disposition strategies.
    • Eligibility criteria should be adjusted to minimize the effect on servicers Administrative Issues

(1) Resources:

(a) What FHA-supplied resources or assistance (e.g. program support) do servicers require for participation in the Program as an alternative claim payment mechanism?

(b) What resources would be helpful?

  • An automated process for supplemental claim submissions.
  • Resources dedicated to the program with specific POC’s for the program participants.
    • FHA should have a designated person available to answer servicer questions pertaining to loan sales timely.
  • Dedicated HUD resources on error code resolution and supplemental payment (under current manual supplemental process).

 (2) Planning process:

(a) Beginning with the initial planning phase, what amount of time is needed by servicers to implement any necessary changes in procedures, protocols, computer programs, or technology platform, etc. to enable participation in the Program?

  • The amount of time needed varies depending on the volume and substance of the changes being made from sale to sale; however, a minimum of 90 day lead time to review differences between PSA’s is requested.

 (b) What are the steps in the process and how long will each take?

  • When new PSA’s are released, a review needs to be completed to determine the changes and impact it will have on the current work processes established.
  • Reporting will need to be developed or altered in order to meet any new or changing requirements with the eligibility criteria.
  • Routine change management protocol would need to be followed, ensuring all applicable resources and affected areas are updated on the sale and any changes which impact their specific functions and areas.

(3) Administrative obstacles:

(a) What administrative obstacles exist to participation in the Program (e.g. reallocation of personnel and resources, reprogramming and reconfiguration of computer of other systems)?

  • Resource allocation is definitely a challenge. SFLS sales require a shift in resources to ensure all sale deadlines within the PSA are met. These resources range from a variety of departments and areas which are needed to ensure all criteria and steps are met timely with no defects.

(b) How can those obstacles be addressed?

  • Having more routine and regimented sales that are held to a schedule will allow for the better planning and allocation of the required resources. With the current schedule of sporadic sales, it doesn’t allow for the planning of staff availability at all times.

(4) Post-Sale Servicing considerations:

                (a) What obstacles were encountered in servicing loans post-sale?

  • HUD doesn’t opine on any disagreements within the ISA’s between the Servicers and new Purchasers.
    • A few Servicers who have went to HUD in these instances advised the Asset Sales office advised them that it’s a contract between the Servicer and New Buyer, so they’re really not involved, leaving those participating parties to work things out.
  • Receiving payment from the new purchaser for advances that occurred during the interim servicing period can be difficult at times. This is definitely dependent on the buyer; however, some servicers have sent communications to HUD as a request to not allow particular buyers to participate in future sales due to the difficulties they’ve experienced.
    • Contractual language to ensure timely reimbursement
    • No indefinite contract clauses relating to servicers having to dedicate a lot of resources to remediate conflict.

3.1 Community Impacts

(1) What benefits has the Program provided communities?

(2) What, if any, adverse effects has the Program had on communities?

(3) What changes, if any, in the sale structure, loan eligibility criteria, or post-sale requirements on purchasers would improve community impacts? What are the policy trade-offs (e.g. potential adverse impact on bid pricing) of such changes?

  • Expanding the criteria to include properties with surchargeable damages. These are properties that the Servicers are struggling with getting into ICC or qualifying for a CWCOT, this would allow those properties to be put back into the communities much quicker.
  • Broader range for loss mitigation options