TheMReport

12 | TH E M REP O RT ADVERTISEMENT FHA Loss Mitigation Waterfall Consistency & Fairness for Borrowers —A Detail Minefield for Servicers Mortgagee Letter 2012-22 (followed by 2013-32) ushered in both a blessing and a challenge for servicers of FHA mortgages. The Blessing F HA detailed guidance on how the waterfall should work has increased the level of objectivity through- out the entire loss mitigation underwriting process. It insures fairness in the evaluation and will help to reduce even the appear- ance of discrimination. The FHA has done a good job at giving every mortgagor an opportunity to save their home, even at the risk of their other financial obli- gations. Removing the 55 percent back-end Debt-to-Income (DTI) ratio requirement and not requir- ing that the mortgagors have a surplus in their monthly budget, attested to the housing expense prioritization. If a mortgagor is determined to keep their home, this program certainly gives them every opportunity. For servicers, the blessing comes in the form of consistency of process. For example the previous FHA waterfall required the servicer to evaluate the mortgagor for a modification prior to a HAMP refinance. The modification evaluation was focused on the mortgagor's budget and surplus cash flow and not the affordability of the monthly payment. Mortgagors who had lean budgets that gave the appearance of affordability but high front-end DTIs may have been given a simple modification when a HAMP refinance would have been a better option. The new waterfall insures that if a simple modification will not reduce the monthly payment by at least 10 percent, the review must continue through to the HAMP. The HAMP will evaluate for an affordable payment. The result will be fewer recurring defaults and a fairer approach by all servicers. The Challenge T he very detail that has brought the blessing is also the challenge. The complexity of the pro- cess has the FHA still issuing clarifications on exactly how the HAMP should be calculated, nearly a year and a half after the initial release. The extent of the challenges will vary based on the volume of loss mitigation a servicer will process. High Volume Servicers–For these servicers, having a means to export data into a decision tool from their servicing system will be critical. This will ensure the integrity of the data and accurate calculations. The tool must be comprehensive and yet flexible for all investor types. WaterfallCalc.com is an online application that provides this service. Developed by DLS Servicing Consultants, LLC, WaterfallCalc.com performs the entire loss mitigation waterfall from Special Unemployment Forbearance to the variations of HAMP refinances in less than 10 minutes if entered manually. The system will also accept low- to high-volume uploads from servicers with only minimal user intervention to ensure an accurate analysis and calcula- tion. This approach expedites the due diligence review prior to or immediately after a servicing transfer and will ensure ongoing consistency in the results for the whole FHA portfolio. Low Volume Servicers—For these servicers, the challenge is train- ing. The lack of volume makes it more difficult to keep the staff focused on the detail of the eligibility analysis and hierarchy of the calculations. A quick read of the Mortgagee Letters can easily leave a less-experienced loss mitigation underwriter's head spinning. WaterfallCalc.com has proven especially valuable for low-volume servicers, because comprehensive compliance has been built into the program. It processes a vast number of questions pertinent to lending. Is the mortgagor unemployed? Is there surplus income suf- ficient to bring the loan current in six months, or enough to be considered for a modification? Is the loan seasoned enough to be evaluated for the modification or HAMP? Should the circumstanc- es warrant a standalone HAMP modification or Partial Claim? Will it be necessary to reduce the principal to reach the target pay- ment? Can an affordable payment be achieved without claiming the full arrears? WaterfallCalc.com provides complete documentation to support the decision process. There are other aspects of the loss mitigation process that can- not be encompassed in an online application, such as: validat- ing the mortgagor's hardship, monitoring trial payment plans, reporting via the Single Family Default Monitoring System, and completing the process through modification execution and claim filing. DLS Servicing Consultants has developed customized, onsite training and consulting services especially targeted at new FHA servicers or those who do not have internal resources they can dedicate for this purpose. With the right tools and the right training, everyone will benefit from the new waterfall. Serious homeowners will remain in their homes, servicers will make fewer mistakes and ensure a fair loss mitigation process that keeps their portfolios perform- ing, and the FHA will eventually benefit from fewer foreclosures. Finally a common-sense approach to what has been a long and dif- ficult road. For more information, visit Waterfallcalc.com, dls-servicing. com, or call 616.570.0199 x151.

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