FHA Proposes Streamlined Single-Family Servicing Policies; CFPB Touts Benefits of Credit Builder Loans

The Federal Housing Administration last week published proposed revisions to its Single-Family servicing policies, designed to remove “unnecessary barriers” for homeowners seeking mortgage payment relief, achieve operational consistency with industry standard best practices and reduce burdens incurred by the industry when servicing an FHA-insured mortgage portfolio.

FHA posted the proposal on its Single Family Housing Drafting Table. Acting Federal Housing Commissioner Len Wolfson said FHA will accept industry feedback on the proposed changes for 60 days.

“Our proposed policy changes will strengthen servicers’ ability to keep families experiencing financial challenges in their homes,” Wolfson said. “They reduce the unnecessary barriers that often impede the delivery of timely borrower assistance.”

The draft Single Family Housing Policy Handbook 4000.1 chapter revisions focus on:

• Revising the standard servicing loss mitigation home retention waterfall to ensure borrowers are assessed for the solution that is most likely to best help them avoid foreclosure;
• Eliminating unnecessary and time-consuming borrower documentation requirements for Trial Payment Plans, bringing FHA requirements into alignment with industry best practices and allowing servicers to grant assistance more quickly; and
• Modifying other servicing and operational policies, including the allowable fee structures, that provide more consistency between FHA policies and those used by the private market and the Government Sponsored Enterprises.

“The proposal we posted today is part of FHA’s work to update its end-to-end servicing policies to promote efficiency while managing risk to FHA’s Mutual Mortgage Insurance Fund,” said FHA Deputy Assistant Secretary for Single Family Housing Joe Gormley. “These revisions, if implemented, will address key challenges our business stakeholders, industry groups, and borrowers have communicated to us over the last several years.”

Also this week, the Consumer Financial Protection Bureau released a report indicating that a credit builder loan could increase the likelihood of establishing a credit record for consumers without one, and could help improve the credit scores of those with no current outstanding debt. The Bureau issued “Targeting Credit Builder Loans: Insights from a Credit Builder Loan Evaluation” and an accompanying practitioner’s guide to broaden insight for community-based organizations and financial institutions working toward expanding financial inclusion.

The report examines 1,531 credit union members who were offered a financial institution’s credit builder loan. Key findings:

• For participants without an existing loan, opening a CBL increased their likelihood of having a credit score by 24%. Almost all participants with existing debt already had a credit score, so the CBL had minimal effect on their likelihood of having score.
• Participants without existing debt saw their credit scores increase by 60 points more than participants with existing debt.
• The CBL was associated with an average increase in participants’ savings balances of $253.

Bureau research found 26 million U.S. adults, one in 10, lack a credit record and are “credit invisible.” Another 19 million Americans have a credit record but no score because their history is too thin or out-of-date. “Without a credit score consumers may face challenges to accessing credit or qualifying for lower-interest rate loans and credit products,” the report said.

The credit builder loan study can be found at https://files.consumerfinance.gov/f/documents/cfpb_targeting-credit-builder-loans_report_2020-07.pdf. The practitioner’s report can be found at https://files.consumerfinance.gov/f/documents/cfpb_targeting-credit-builder-loans_practitioner_guide_2020-07.pdf.