The Federal Housing Administration (FHA) this week published a newly proposed Mortgagee Letter on its Single Family Drafting Table, which would align mortgage borrowers and originators in their understanding of how much is owed on a partial claim.
Partial claims are designed to offer assistance to mortgage borrowers who have fallen behind on their monthly payments, allowing them to become current without impacting the terms of their original loan. FHA pays a portion of the past-due amount as a foreclosure–mitigation measure, and the amount paid by FHA becomes a subordinate lien on the property.
Partial claims do not, on their own, require new monthly payments, but the amount must be repaid when the home is sold or refinanced, or when the loan is fully paid off.
“With this draft ML, HUD is seeking to ensure that borrowers, closing agents, attorneys and title agents are aware of the partial claim subordinate lien amount owed by ensuring that the partial claim payoff is provided to the party requesting the payoff statement for the FHA-insured first mortgage,” the agency said.
FHA believes that this new process can help to “minimize losses to the FHA Mutual Mortgage Insurance (MMI) Fund and prevent any potential challenges related to the subordinate lien for those refinancing their mortgage or selling their home. In addition, this ML proposes to partially alleviate an operational burden on [lenders] by increasing the time allowed to record a partial claim.”
The two core provisions of the proposed guidance would establish a new procedure in which lenders would obtain partial claim payoff statements from the U.S. Department of Housing and Urban Development (HUD)’s Single Family Mortgage Asset Recovery Technology (SMART) Integrated Portal (SIP), and would then “provide it when they receive a payoff request on an existing FHA-insured mortgage,” the announcement said.
The proposal would also extend the time frame for lenders to “record partial claim security instruments from 5 to 15 days,” FHA said.
Stakeholders are invited to submit their comments on the proposal through Oct. 10.
HUD first launched a new portal for the SMART system in early 2022, which was designed to allow borrowers and servicers to request real-time payoff amounts for FHA partial claims or subordination checklists typically used in FHA refinancing transactions.