HUD Proposes Enhancements to CWCOT Procedures

HUD, in a draft Mortgagee Letter, proposes to enhance FHA’s Claims Without Conveyance of Title (CWCOT) procedures, a development welcomed by the Mortgage Bankers Association.

The draft Mortgagee Letter ( would be effective for all foreclosure sales associated with defaulted FHA-insured mortgages. Specifically, the proposed enhancements to FHA’s CWCOT procedures would:

–Provide for a second appraisal upon vacancy for a property that had an exterior only appraisal, where an interior appraisal could not be obtained;

–Permit Mortgagees to submit eviction costs and certain eligible property preservation expenses incurred during additional sales opportunities;

–Update the policy and allowable fee structure regarding independent third-party providers that conduct foreclosure sale or additional Post-Foreclosure Sales Efforts under CWCOT procedures; and

–Regularly update discounts in FHA Connection and changing to tier-based pricing factors.

Sara Singhas, Director of Loan Administration with MBA, said the proposed changes to CWCOT procedures have been long-advocated by MBA. She said the proposed enhancements will help expand the program, “allowing more vacant properties to get back to productive use faster by avoiding the often-lengthy and expensive conveyance process.”

“Our members are very supportive of the CWCOT program,” Singhas added. “We’ve been urging HUD to make improvements to expand the program and allow more eligibility.”

CWCOT is a claim option through which FHA pays insurance benefits to a Mortgagee after the sale of the property to a third party at the foreclosure of the FHA-insured mortgage or through a second chance sale. With CWCOT, there is no conveyance of the property to HUD in exchange for payment of mortgage insurance benefits. CWCOT expedites disposition of foreclosed properties and reduces the amount of time a property sits vacant. It benefits HUD by reducing administrative, holding and servicing costs associated with the lengthy conveyance and REO disposition process and serves the goals of HUD’s Housing Finance Reform Plan.

HUD is also updating specific eligible costs and fees, in line with updates to CWCOT procedures. Reimbursement for eviction and eligible property preservation costs helps ensure successful CWCOT transactions, which leads to savings in the long term. Refinement of independent third-party provider fees aligns with HUD’s recognition of the distinction between third-party foreclosure sales where the auction company does or does not cry the sale.

MBA, in its policy Recommendations for Improvement to FHA Servicing (, noted unlike other investors and guarantors, FHA does not take direct conveyance of a property after foreclosure. Rather, they require the servicer to bring the property into “conveyable condition” within 30 days of taking control of the property. Within the 30-day period, servicers must perform multiple tasks including inspecting the property to determine necessary repairs, obtaining repair estimates and FHA approval for costs that exceed FHA’s allowances, completing the repairs, obtaining and paying outstanding homeowners association dues and utilities, and obtaining clear title. Moreover, FHA holds servicers responsible for maintaining the property until it pays the claim, even though the title to the property was already conveyed to HUD. Extended timeframes between conveyance and payment increase servicer liability and potential exposure to foreclosure-related losses.

Additionally, MBA said unclear guidance from FHA and inconsistent interpretation and enforcement of conveyance condition standards have resulted in significant volumes of properties being re-conveyed to servicers, adding to servicer costs and delaying the liquidation process for FHA. In some cases the FHA conveyance process adds nearly an entire year to the process, compared to non-conveyance routes.

Singhas said the proposed Mortgagee Letter addresses many of these concerns and MBA will provide additional recommendations to HUD before the Letter becomes final. “Overall we are very positive about these enhancements and applaud HUD for expanding this program,” she said.