The Federal Housing Administration (FHA) recently announced a proposed rule change that would establish a deadline for lenders to file insurance claims and modify its current policy for reimbursements when foreclosure and claim filing deadlines are missed.
Current regulations do not establish a deadline by which lenders and servicers must file claims for FHA mortgage insurance benefits for many loans. Following the downturn in the housing market and resulting dramatic increase in mortgage defaults, lenders and servicers often delayed filing insurance claims for 2 years or more after foreclosure sales, opting to wait and file multiple claims at once.
According to the FHA, “[t]he uncertainty regarding a deadline by which a claim must be filed, and the number of claims currently being filed at a single point in time strain FHA resources and negatively impact FHA’s ability to project the future state of the Mutual Mortgage Insurance Fund (MMIF), and, consequently, the ability of FHA to fulfill its statutory obligation to safeguard the MMIF.”
The proposed rule will require lenders and servicers to file claims for insurance benefits three months after they acquire marketable title to the property or sell the property to a third party. The proposed deadlines will not deprive lenders and servicers of the benefits of simultaneously submitting multiple claims, so long as those claims each fall within the proposed time periods. Greater certainty in the claims process is expected to place less strain on FHA resources and facilitate the FHA’s ability to comply with its obligation to protect insurance funds.
In addition to establishing a deadline for filing insurance claims, the FHA’s proposal would allow lenders and services to recover eligible expenses and debenture interest where such reimbursements are currently disallowed because the lender or servicer missed the foreclosure or claim filing deadlines. Under the new rule, the FHA would provide for reduction in the amount of the reimbursement based upon number of days the foreclosure or claim filing was late rather than complete curtailment, or disallowance, of the reimbursement due to the missed deadline.
Public comment on the proposed rule change is due September 4, 2015.