MReport Jan 2019

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56 | TH E M R EP O RT O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST GOVERNMENT A Win-Win for Borrowers and the FHA A case for why tweaks to the FHA's CWCOT program would benefit homeowners and the agency. By Ed Delgado T his is what stability looks like. Gone are the days of observ- ing a Federal Housing Administration (FHA) directed by unconfirmed "acting" leaders, an appointment wielding only enough power and gravitas to act as a caretaker at best. Now, despite an unnecessarily lengthy confirmation process, the FHA has a confirmed, bona fide Commissioner in place with the power and vision to guide it into the future. In the months leading up to his confirmation, Commissioner Brian Mont- gomery made it no secret that he would use his status as the unquestioned leader of the FHA to make changes necessary to better align its business practices with the realities of mortgage servicing in a post-crisis era and strengthen the Mutual Mortgage Insurance Fund (MMI Fund) for years to come. Confirmation politics behind him, the Commissioner now has an opportunity. On November 15, the U.S. Department of Housing and Urban Development (HUD) released its 2018 annual report to Congress, detailing the economic condition of the MMI Fund. While the FHA's progress in the last year—an insurance in-force of $1.26 trillion on more than 8 million mortgages and an economic net worth that grew by $8.12 billion from 2017 to $34.86 billion in 2018—is commend- able, the data within the report highlighted additional opportuni- ties for strategic changes which could strengthen the health of the MMI Fund to the benefit of taxpayers and homeowners. First and foremost, FHA should adjust the Claims Without Conveyance of Title (CWCOT) program to encourage expansion and discourage conveyance of properties to HUD. Although in existence since 1987, the CWCOT program has seen increased emphasis in recent years because it allows servicers to avoid the time consuming and expensive process of conveying the property to HUD. According to recent data taken from the FHA Single Family Loan Performance Trends Credit Risk Report, as of July 2018, HUD was losing $55,083 on each home sold through REO. According to its annual report to Congress, in FY2018 FHA disposed of 23,765 properties through REO. A conservative estimate would place the cumulative loss for FY2018 at approximately $1.5 Billion. By con- trast, the report's data highlighted that in 2018 CWCOT proved to be much more cost-effective than REO, saving FHA ap- proximately $4,800 per disposition that otherwise would have been processed through REO. FHA, by its admission, has acknowledged that the disposition of a property through third-party disposition places HUD in a more favorable position. "A notable trend is the continuing reduction, beginning in FY2013, of REO dispositions versus other asset disposition op- tions that are less costly to HUD." The data from this report con- firms what many in the industry see throughout their books of business: the expansion of the uti- lization of CWCOT where appro- priate would limit loss exposure and provide additional savings for the MMI Fund while benefiting communities by preserving the condition and accelerating the sale of foreclosed properties. But there is room for improve- ment in the program. In the near term, FHA should focus on offer- ing clarifying guidance on valua- tion and sale protocols that would encourage the use of CWCOT. Expanding Access to CWCOT in Alignment With The GSEs, VA, and RD A majority of servicers in- terpret FHA's current guidance of permitting them to use an

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