Mortgagee Letter 2024-02: The Changes
Julia Gordon, commissioner of FHA, surprised the MBA conference audience the morning of February 21, 2024, by announcing the imminent release of their new Mortgagee Letter 2024-02. This is the final version of the Payment Supplement Agreement (PSA). The letter was live shortly after on that day, and many at the conference were quickly examining and digesting the changes from the previous draft.
The program went through multiple iterations on the drafting table (a feature that VA and RHS announced at the same panel that they would also be implementing). We list below some of the noteworthy alterations, clarifications, and additions to the waterfall component of the PSA.
When will the PSA be Implemented?
Servicers may implement the final version of the FHA PSA waterfall as soon as May 1, 2024, but no later than January 1, 2025. To help provide a smoother transition, FHA is extending existing Covid-19 home retention options to April 30, 2025. As some have wondered, the Payment Supplement is not temporary. HUD makes clear in the new Mortgagee Letter that it will serve as a “permanent part of FHA’s loss mitigation options.” HUD states they will discuss this in a future letter.
The Mortgagee Letter goes on to list the home retention options available to borrowers prior to offering a Covid-19 workout, pending meeting the requirements. FHA reiterates that the HAMP program is still suspended, at least until April 30, 2025. Servicers will have to wait to see if the program will have any place outside of exempted transfers.
Some Important Changes and Clarifications
Servicers were concerned regarding incentives for the Payment Supplement. The last version of the letter listed $1,000 as the incentive, whereas the final version raised it to $1,750. This amount is still well short of the $3,000 that some lobbied for. This is accounting for the complexity involved in maintaining the program for the duration of 36 months.
There are a couple noteworthy changes for the calculations and eligibility involved with the Payment Supplement. First, FHA had earlier described the minimum PSA requirement as “5 percent and $20.00 P&I payment reduction for 36 months.” The perplexing phrasing is open to interpretation. The letter clears things up more, the minimum is a 5% reduction, which must also be no less than $20.00.
Second, a borrower cannot receive more than two Stand-Alone Partial Claims to help bring them current if they happened to fall delinquent during the PSA. Some raised the question at what point would a borrower be terminated from the Payment Supplement. A Stand-Alone Partial Claim can be used to reinstate the mortgage without terminating the PSA. Initially there was no limit on how many times a borrower could receive the former, so one could potentially be reinstated a multitude of times over the course of the 36-month period. Added regulations such as this help provide constraints to the available limits of the Payment Supplement.
Final Thoughts
This final version of the FHA Payment Supplement program will undoubtedly be the subject of much discussion over the course of 2024 as mortgage servicers adjust their systems and staffing to meet the demands for successfully implementing this new waterfall. Click here to see the results of our own internal data analysis based on an early mockup program of the PSA.
