How the FHA avoided the robo-signing mess

by Peter G. Miller
November 29th, 2010

For the past few months robo-signing has been much in the news, a situation where foreclosure affidavits were signed by lender representatives — without actually being read. This is a huge problem because it means that lender claims could be wrong and that some borrowers — though probably not many — have been unjustly thrown out of their homes.

The robo-signing mess has largely skipped FHA loans, as we reported in October. The reason is that the federal government keeps a tight rein on lender requirements and paperwork.

Now we have Congressional testimony from FHA Commissioner David H. Stevens which explains in greater detail what HUD did and is doing to protect borrowers — lessons private-sector lenders might want to consider.

“At the time I took office at FHA,” said Stevens, “we found that significant reviews of servicer performance were not being done and had never been done, certainly not at the level of detail required. Thus, in November, 2009 we began implementing very specific monitoring around servicer performance — particularly whether servicers were helping to prevent foreclosures by helping responsible homeowners restructure their mortgages.”

Translation: FHA guidelines were in place long before the robo-signing storm arose — but to have impact those guidelines have to be enforced.

“Specifically,” said Stevens, “we initiated more robust servicer loss mitigation comparison reporting, which spanned the vast majority of the FHA portfolio. This new, more detailed reporting system enabled FHA to provide peer group comparisons of servicers in their utilization of loss mitigation options available to borrowers, which allowed us to identify which tools servicers were using, how frequently and how consistently.”

And what did the new reports show?

“Initial findings showed significant variations in the performance of different servicers, triggering a more in-depth look at firms servicing FHA mortgages.”

For those who have violated the rules the result has been costly: Stevens reports that since he became the FHA Commissioner the “FHA has suspended a number of well-known lenders, withdrawn approval for over 1,500 others and imposed over $4.27 million in civil money penalties and administrative payments to non-compliant lenders.”

The big club here are not the fines, instead it’s the ability to drop lenders from the FHA program and thus the ability to compete effectively in today’s marketplace.

Borrower Complaints

So what happens if you have a tiff with a lender?

Under the Real Estate Settlement and Procedures Act (RESPA), checks every borrower complaint it receives — and quickly.

Stevens explains that “RESPA Specialists investigate every complaint of loan servicer RESPA violations. Complaints are received from consumers by mail, phone calls and e-mail. Phone calls are assigned to Specialists on a rotating basis and must be answered within 2 business days of assignment. E-mails are also assigned to Specialists on a rotating basis and must be answered on the day of assignment. Case files are opened for each complaint received by mail and for each phone call and e-mail that cannot be immediately handled with a response to the complainant.”

In effect, the interests of borrowers and the FHA are similar — borrowers want to avoid foreclosure and the FHA wants to avoid unjustified lender claims.

If you have missed an FHA payment please contact a HUD foreclosure avoidance counselor for assistance — and to protect your interests.

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