MBA Raises Concerns on RHS Proposal on Paper-Based Claims

The Mortgage Bankers Association, in a letter last week to the Rural Housing Service, expressed support for the agency’s proposed rule to amend its loss-claim and loss-mitigation processes, but cautioned the proposal, as written, could result in increased losses for lenders on foreclosed properties.

The RHS proposal ( would make several changes to its single-family housing guaranteed loan program regulations to streamline the loss claim process for lenders who have acquired title to property through voluntary liquidation or foreclosure; clarify that lenders must comply with applicable laws, including those within the purview of the Consumer Financial Protection Bureau; and better align loss mitigation policies with those in the mortgage industry.

In the letter, MBA Senior Vice President for Public Policy and Industry Relations Stephen O’Connor said the Association supports RHS’s proposal to eliminate paper based claims submissions, revise the definition of settlement date for deeds-in-lieu to the date title is recorded and clarify that lenders must adhere to other applicable federal, state, and local laws in addition to compliance with Agency guidance. He noted MBA’s concerns with the proposed loss claim process arise from a lack of transparency regarding the valuation process and occupancy status at the time of title acquisition.

The proposed rule amends the loss claim payment process for lenders who have acquired title to property through voluntary liquidation or foreclosure. Under the new framework, lenders would be required to order a market value appraisal 15 days after acquiring title and submit their claim within 45 days of receipt of the appraisal. Loss claims will be paid after acquisition and prior to marketing the REO. This would eliminate the need for REO property disposition plans, different loss claims calculations based on whether the property is sold or remains in the lender’s REO portfolio, and claims adjustments based on future recovery.

“[We] believe that a streamlined process could be beneficial to both lenders and RHS,” the MBA letter said. “However, we are concerned that this proposal, as drafted, will result in increased losses for lenders on properties that take a significant time to liquidate following foreclosure sale. Whether or not this concern is a reality depends largely in part on the valuation model employed. Unfortunately, this proposal does not provide enough detail on the valuation model to assuage these concerns.”

MBA also voiced support for most of the proposed changes to loss mitigation servicing but raised concerns that providing increased flexibility to servicers when requiring Trial Payment Plans from borrowers may negatively impact a lender’s ability to buy the loans out of Ginnie Mae pools. The Agency is proposing a series of adjustments to loss mitigation strategies to offer borrowers faster and greater payment relief early in the loss mitigation process and better align with industry practices.

MBA said it supports the following proposed changes:

–Eliminate the requirement for Agency concurrence on formal servicing plans or voluntary liquidation. 

–Provide a stand-alone Mortgage Recovery Advance for certain borrowers who can continue to make contractual payments but cannot cure the delinquency. 

–Clarify capitalization of delinquency amounts for special servicing options. 

–Simplify MRA calculations by removing the maximum limit of 12 months PITI and the requirement to reduce the max MRA by the sum of the arrearages advanced to cure the default and any foreclosure costs incurred to that point.

The Agency also proposes to permit lenders discretion in determining whether a trial payment plan is warranted for a traditional servicing loan modification.

“While we support most of the changes to loss mitigation servicing requirements to provide greater payment relief and better align with industry practice, we believe that the proposal to give lenders discretion over trial payment plan requirements would create a discrepancy with Ginnie Mae’s guide and impair lenders’ ability to liquidate certain loans from Ginnie Mae pools prior to modification,” O’Connor wrote.

MBA recommended RHS consult with Ginnie Mae to clarify guidance on this issue and provide more transparency into the valuation model it intends to use prior to finalizing the rule.