If an FHA borrower runs out of options for loss mitigation and home retention, a lender must first consider a pre-foreclosure or short sale, with deed-in-lieu (DIL) of foreclosure as a second option, according to new FHA guidance. Mortgagee Letter 2014-5 states that the lender must first determine whether the borrower facing default or at risk of default qualifies for a pre-foreclosure sale (PFS). The FHA allows pre-foreclosure sales to be processed as either a “standard PFS” or a “streamline PFS.” The former is available only to owner-occupants while the latter is for both owner- and non-owner-occupied single-family properties. In determining standard PFS eligibility, the lender must use a “deficit income test” to determine whether the borrower is experiencing hardship and is able to sustain his or her mortgage. A DIT resulting in a negative amount would likely qualify the borrower for a ...

New FHA guidance regarding voluntary termination of FHA mortgage insurance does not affect separate guidance requiring borrowers to continue payment of their annual insurance premium regardless of the loan’s amortization terms. The FHA made the clarification in relation to Mortgagee Letter 2014-13, which requires written consents by the lender and the borrower in all voluntary terminations of FHA mortgage insurance. The requirement becomes effective on Oct. 1st this year. Specifically, the guidance requires FHA lenders to document that they have obtained the borrower’s informed consent to terminate FHA insurance on the mortgage. The change ensures that the lender would incur no liability and that the borrower understands the terms of the voluntary termination. Under current rules, the FHA may terminate mortgage insurance at the request of the borrower and the lender. The lender may cancel the insurance endorsement upon notification by the FHA commissioner that the insurance contract is terminated.

One deficiency commonly noted in cases heard by the Department of Housing and Urban Development’s Mortgagee Review Board is failure by FHA lenders and servicers to implement and maintain a quality control (QC) plan. FHA’s focus on quality control has increased over the last couple of years as the agency strives to correct underwriting flaws that have contributed to the massive losses and severe depletion of the Mutual Mortgage Insurance Fund. After years of guiding and helping clients comply and cope with FHA regulations, requirements and enforcement actions, the Collingwood Group reports that a common QC-related mistake among FHA lenders is failure to document steps taken to correct deficiencies – or to take any corrective action at all. Tied to this issue is ...

Senate Confirms Julian Castro as Next HUD Secretary. The Senate has confirmed Julian Castro as the 16th secretary of housing and urban development by a vote of 71 to 26. He replaces Secretary Shaun Donovan, whose nomination for director of the Office of Management and Budget was also approved 75-22 by the Senate on July 10. Before his nomination, Castro served three terms as mayor of San Antonio, TX, during which he focused on revitalizing the city through numerous housing and economic development initiatives. Housing advocates who have worked with Castro said, as a municipal leader, he knows what is needed to rebuild local economies under enormous financial constraints, which he can work to his advantage as HUD’s new head. In addition, Castro has the capacity and temperament to work with a Republican Congress, they said. The Securities Industry and Financial Markets Association said it looked forward to working with ...

Private mortgage insurers that survived the housing market collapse are quietly gnashing their teeth over new eligibility rules proposed by the Federal Housing Finance Agency, which likely will cause some to reengineer their corporate structures and/or raise additional capital. The good news for the legacy firms – Genworth, Mortgage Guaranty Insurance Corp., Radian and United Guaranty – is that they have the financial ability to meet the new capital standards. The bad news – for this group and MI newcomers – is that the FHFA’s proposals would narrow the competitive gap between the private MIs and the FHA. One trade group official, speaking under the condition his name not be used, noted...

The Federal Housing Finance Agency late this week finally unveiled new eligibility standards for the mortgage insurance industry, introducing for the first time risk-based capital rules that are tied to a measurement called “available assets.” Immediately after the rule hit the market, several MI firms said they support the idea that Fannie Mae and Freddie Mac must have strong financial counterparties, while hinting they will have more to say on the topic in the near future.

Last week, new GSE repurchase requirements announced this spring took effect as a potential alternative to repurchase for certain mortgage loans for which the mortgage insurance has been rescinded. Among the requirements are an “MI stand-in,” which Fannie Mae defines as “the full mortgage insurance benefit that would have been payable under the original mortgage insurance policy if the mortgage loan liquidates.” In May, both Fannie and Freddie Mac announced that repurchase requests will no longer be an automatic response in the event that MI is rescinded.

The modest rebound in the housing market during the second quarter of 2014 produced a solid increase in the volume of home loans with private mortgage insurance securitized by Fannie Mae and Freddie Mac. A new Inside Mortgage Finance analysis and ranking reveals that the two government-sponsored enterprises securitized $37.36 billion of single-family mortgages with private MI coverage during the second quarter. That was up 24.7 percent from the first three months of the year, which had produced a dismal $29.95 billion of MI-insured loans in new GSE mortgage-backed securities. By comparison, total GSE business was...[Includes two data charts]

Recently implemented steps by the two government-sponsored enterprises to provide an alternative to repurchase when mortgage insurance is rescinded is a pleasant salve for a minor ailment, but it does nothing to address lenders’ chronic pain of sudden and unexpected buyback demands, according to a mortgage lender. Last week, new GSE repurchase requirements took effect, including the “MI stand-in” option, which Fannie defines as “the full mortgage insurance benefit that would have been payable under the original mortgage insurance policy if the mortgage loan liquidates.” In May, both Fannie and Freddie announced...