When FHA released Mortgagee Letter 2013-19, it raised an important point that could go overlooked without careful consideration:
“The maximum partial claim amount under FHA-HAMP is 30 percent (30%) of the outstanding principal balance as of the date of default. The 30% maximum partial claim that is allowed for a borrower or set of borrowers is described in ML 2012-22. An FHA streamlined refinance or change in FHA case numbers does not reset this 30% maximum.”
Given this rule, it is imperative that servicers include a previous partial claim amount on a loan when calculating the maximum claim amount that can be considered for new loss mitigation assistance. Fortunately, there are a variety of ways a servicer can determine whether a loan has had a previous partial claim:
Option 1 - Servicing System Identification – Most servicing systems provide options that would allow a servicer to quickly identify if a previous partial claim had been applied on a loan. This identification process should not only include that a partial claim had been processed, but also include the amount claimed, less any FHA incentive fee.
Option 2 - Neighborhood Watch Case Summary – At the end of the Case Summary, all claims that have been filed for a specific case number will be listed. The Case Summary will include the date the claim was filed (not the date posted) and the amount of the claim. It should be noted that the amount will include any incentive fee that was paid out by FHA. The incentive amount should be deducted when including the previous partial claim amount in any new HAMP calculations.
Option 3 - Title Report – The previous partial claim would have required that the borrower agree to and sign a subordinate mortgage and note for the amount of the claim. The subordinate mortgage would be recorded and remain on the title to the property. This subordinate mortgage would not include any incentive fees paid by FHA.
Some servicers review the title report prior to issuing the trial payment plan to ensure the title is without issues and that a HAMP can be offered. In cases where a title is not clear, borrowers can be given sufficient time to resolve any issues prior to the posting of the modification. Other servicers prefer to wait until the borrower has completed the trial payment plan to ensure that no new title issues arise that would complicate the posting of the modification.
When a loan is refinanced in the FHA streamlined program, the new loan is given a new FHA case number and in most instances, servicers will assign a new loan number. Additionally, the original partial claim subordinate mortgage is always re-subordinated for the new streamlined mortgage.
This makes tracking previous partial claims more difficult if servicers rely solely on Options 1 and 2. It would also then require that servicers order the title report before a trial plan is released, since the amount of the previous partial claim is needed to perform the calculations for the new HAMP claim. This exposes the servicer to title issues that may occur after the initial title report is ordered and reviewed. However, this risk can be reduced by a thorough analysis of the borrower’s credit report to determine if there are items that may become or are already in the process of becoming liens or judgments that could encumber the property.
To ensure that no previous partial claim is missed, lenders that retain the servicing of their own streamlined refinances can add a step to their new loan set-up procedures that incorporate tagging the new loan with the old partial claim information. On newly acquired loans undergoing loss mitigation, it becomes especially critical to order title reports earlier in the process and to identify those loans which have already received a partial claim. Failure to include the amount of the previous partial claim on a loan could mean that the claim for the new HAMP could inadvertently exceed the maximum claim amount and the servicer will be left having to honor the excess amount with corporate funds. Without the benefit of historical information, offering a HAMP that exceeds the FHA maximum allowable could be a very unwelcome and costly surprise.
Contact us to find out more about how DLS Servicing Consultants can assist with the management of your portfolio and ensure costly mistakes like exceeding FHA HAMP Maximum Claim Amounts don't happen to your business.