CFPB Proposes New Rules for Mortgage Servicers
We’ve all grown accustomed to rules and change management, but what does the Consumer Financial Protection Bureau’s (CFPB) Proposed Rule mean for...
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Following up on our last blog, ‘Servicing Answers to High Interest Rate Pressures,’ it is crucial that mortgage servicers do not succumb to the ongoing news of tumbling interest rates and the possibility of multiple Federal Reserve rate cuts on the horizon. With inflation reports calming, the average 30-year mortgage rate dropped under 6.50 percent; however, this does not change the extensive gap between today’s rate and the historically low interest rates that are tied to the majority of mortgage loans currently being serviced. As mortgage delinquency rates appear to be teetering on a precipice, industry agencies are gearing up for a change in loss mitigation strategy. Last month, Clarifire delved into the new FHA Payment Supplement Program. This month, we’re taking a look at the Department of Veterans Affairs (VA) recently announced changes designed to assist veterans at risk of foreclosure.
The VA Last Resort Option
The most notable is the recent launch of the new Veterans Affairs Servicing Purchase (VASP) program, which commenced on May 31st of this year and has a mandatory implementation date of October 1st. This program has been dubbed a “last-resort tool” for veteran homeowners facing severe financial hardship, as VASP should be the last option in the VA “Home Retention Waterfall.” Under this program, the VA will purchase defaulted loans, modify them, and place them in the VA-owned portfolio. These borrowers will have access to a 2.5% interest rate through their servicer. Eligibility is determined by the servicer, who selects qualified loans, evaluates them under streamlined criteria, and then submits the program applications to the VA on behalf of the delinquent homeowners.
The Traditional VA Option
The VASP program was added to Chapter 9 of the VA Servicer Handbook, which describes two different solutions, the VASP program and the Traditional VA Purchase (tVAP) option. The tVap program is evaluated on a case-by-case basis, and for this program, the VA determines if the option is the most appropriate route to assist the Veteran. The process itself can be initiated by either the servicer or the VA; however, the servicer would simply refer the loan to the VA for review and consideration, a process that includes numerous requirements to be met prior to decisioning and implementation.
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The 40-Year Loan Modification
In support of these programs, the VA has put a targeted pause on foreclosures through December 31, 2024, with certain exceptions, such as vacancy, abandonment and full exhaustion of designated alternatives to foreclosure.
The Targeted Pause
The U.S. Department of Housing and Urban Development (HUD) recently introduced its Payment Supplement program to assist Federal Housing Administration (FHA) borrowers in default without consideration of interest
The Nuts and Bolts of Satisfying New Requirements
Whether the servicer or the VA makes the initial determination that a borrower is eligible for new foreclosure avoidance options, the work that results is crucial to successfully assisting Veterans. At a minimum, the next steps for mortgage servicers touch on the following requirements.
- The VA Home Retention Waterfall is outlined in Appendix F of the VA Manual and outlines eight steps required to determine if and how a veteran can be helped.
- Has your organization fully automated the steps detailed as a part of the VA waterfall? At a minimum this includes determining VA Disaster applicability, calculating ability to repay, considering Special Forbearance, meeting related timeframes and documenting step-by-step adherence to guidelines.
- The servicer must have made the final decision to foreclose.
- Are your systems designed to dual-track foreclosure processes against all loss mitigation alternatives, including detailed tracking of events, communication, and documentation?
- The borrower must certify that they intend to occupy the property, which may include a due-on-sale clause.
- Are you effectively tracking and documenting occupancy, one of the biggest areas of fraud in mortgages?
- The loan must be in default, and the event or circumstance that caused default has been resolved.
- Tracking delinquency statuses can be second nature, but identifying and documenting the reasons for default and their resolution can be a challenge. Is your organization satisfying requirements in this area?
- The homeowner must be deemed to be a reasonable credit risk based on review criteria.
- Are you effectively determining creditworthiness based on the volumes of loss mitigation criteria? Each agency carries different waterfall, eligibility, documentation, event and communication requirements. How does your staff ensure accuracy and consistency when communicating with your borrowers?
- At least 12 monthly payments must have been received.
- As new loans are onboarded, is your data accuracy on par with requirements, and are exception processes in place and workflows automated?
Did You Answer ‘No’ to the Italicized Questions Above?
Mortgage servicers know that these areas are simply the tip of the iceberg. What’s important is having the agility to tweak these rules, systems, and processes as change occurs. Although servicers are no strangers to change, the current loss mitigation environment requires a new lens, and if you answered ‘no’ to any of the italicized questions, then it’s time to evaluate your approach and technology partners.
CLARIFIRE® offers proven solutions to the automation of complex problems, requirements, and regulations that continue to be released from the agencies. By delivering modern change capabilities that power your systems and empower your loss mitigation team, we make a real difference in your ability to provide meaningful relief. Relief that extends to distressed borrowers, rapidly automates changing requirements, and most importantly, helps you compete in an everchanging financial ecosystem. CLARIFIRE® has been helping mortgage servicers evolve, innovate, and automate since 2007. Contact us today to experience the power of real-time seamless servicing automation and intelligence with CLARIFIRE®. Start by visiting us at eClarifire.com, and we will show you how CLARIFIRE® is truly BRIGHTER AUTOMATION®.
Jane has applied her vast experience (over 25 years) operating process-driven businesses to successfully redefine client-focused service. Jane has worked with expert programmers to apply cutting-edge web-based technology to automate complex processes in industries such as Financial Services, Healthcare and enterprise workflow. Her vision confirms Clarifire's trajectory as a successful, scaling, Software-as-a-Service (SaaS) provider. A University of South Florida graduate, Jane has received many awards related to her entrepreneurial skills.
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