In order to provide a clear time frame for claim payments, the Federal Housing Administration (FHA) recently announced its proposal to establish a maximum time period for lenders to file insurance claims. The FHA also intends to revise its policy on reimbursement of eligible expenses and debenture interest when foreclosure and claim filing deadlines are missed.
“Since the economic downturn in the housing market, many servicers delayed filing claims for insurance benefits, opting to wait and file large numbers of claims with FHA at the same time,” the FHA said. “The costs associated with delayed claim filing and the large number of claims filed simultaneously strain FHA resources.”
According to the FHA, the proposal would require lenders to submit claims three months after they gain marketable title to the property or sell the property to a third-party. This new deadline will ensure that the FHA will be able to manage and process these claims effectively and in a timely manner.
Under the FHA’s new proposal, lenders and servicers would also no longer be required to forfeit reimbursement for eligible expenses and debenture interest after missing a foreclosure or claim filing deadline. Instead, lenders and servicers will now receive this reimbursement directly with a possible deduction based on the number of days the foreclosure or claim filing deadline was past due. This reimbursement calculation will allow lenders and servicers to recover amounts they normally would have lost while mitigating the cost to FHA associated with missed deadlines.
The FHA is offering the public an opportunity to comment on the proposed FHA’s proposed rule. Public comment will be open for 60 days.
In April, Fannie Mae and Freddie Mac also made efforts to reduce loan losses and risk by changing their Private Mortgage Insurer Eligibility Requirements (PMIERs), altering the financial and operational minimums required of approved private mortgage insurers (PMIs).
Though they won’t go into official effect until December 31, the revised PMIERs will alter the standards that a PMI vendor must meet – and maintain for the life of the business relationship – before they can provide insurance on Fannie Mae- and Freddie Mac-backed loans.
According to Fannie Mae, “during the recent financial crisis, some mortgage insurers were unable to fully pay claims, resulting in losses to Fannie Mae and increased losses to taxpayers.”
In order to prevent these losses in the future, the GSEs moved to strengthen their financial requirements of approved PMI insurers, thus reducing overall risk. The new requirements will ensure that PMIs can meet their agreed-upon obligations regardless of current economic conditions or the marketplace.
“FHFA guided Fannie Mae and Freddie Mac in strengthening and aligning counterparty risk management policies to make certain that private mortgage insurer counterparties are able to fulfill their role of providing reliable credit enhancement for loans acquired by Fannie Mae, even in adverse market conditions,” a Fannie Mae statement reads.