The mortgage letter provides that a lender may file an eligible mortgage involving a borrower who is directly or indirectly in financial difficulty due to COVID-19 and who has applied for or received a forbearance agreement for confirmation of insurance due to COVID-19 if: According to the mortgagee`s letter, the offset loans are suitable for streamlined refinancing. If HUD pays a claim for a Rationalline refinancing loan that is not eligible for credit, HUD will continue to hold the mortgagee that compensated the original loan liable for any loss incurred by HUD. In the case of refinancing operations eligible for credit, compensation for the previous loan shall be terminated. In both cases, the mortgagee LI providing the simplified refinancing will be liable for any loss suffered by hud in connection with serious and material violations of HUD requirements or fraud or misrepresentation in connection with the refinanced loan. The mortgage letter reaffirms HUD`s power to seek compensation for serious and material violations of the FHA`s origination requirements and cases of fraud or misrepresentation that the lender knew or should have known. In the event of serious and material violations that resulted in the loan not eligible for FHA insurance, the lender must indemnify HUD for any loss of the loan if it defaults within five years of confirmation of mortgage insurance. In the event of fraud or misrepresentation, the lender is required to indemnify HUD for any loss during the term of the loan. Mortgage Letter 2013-10 also clarifies that the mortgagee who insured the loan is responsible for indemnification from HUD, regardless of how the loan was made, including loans where a third-party originator was an FHA-approved lender. In cases involving a principal and an authorized representative where the principal insures the loan, HUD may seek compensation from the authorized representative for serious and material violations of huD requirements or for fraud or misrepresentation. In cases where there is unpaid compensation at the time of the insurance application, HUD will pay insurance benefits to the mortgage holder, unless the holder is the same company named in the indemnity agreement.
According to the revised LI Guide, more than 700 mortgagees currently participate in the LOI program, and each month approximately 80% of all term loans are approved under the LOI program. Given the LI program`s predominance among FHA-insured loans, the policy changes announced this week will have a significant impact on FHA-approved lenders, who will soon find themselves the target of HUD audits and follow-up reviews, which could result in increased claims for compensation. With these policy changes, lenders are likely to be more conservative in their underwriting decisions, which could lead to fewer FHA origins and reduced funding opportunities for more Americans. Instructions for concluding the compensation contract can be found here. Lenders must sign the indemnification agreement as part of the search for confirmation of a loan. The details of the filing of the agreement are set out in the mortgagee`s letter. HUD will give mortgagee LI the opportunity to provide additional documentation to review the results of the audit. If hypothecary creditor LI does not respond, or if, after reviewing mortgagee LI`s response, HUD determines that the deficiencies have not been corrected, HUD will send a notice of compensation to hypothecary creditor LI requesting hypothecary creditor LI to indemnify HUD for any potential financial loss arising from that loan under the final settlement. Claims can be made by HUD`s Director of Residential Real Estate Centre Quality Assurance, the Office of Lenders` Activities and Program Compliance, or the Mortgage Review Board. Since announcing in November 2012 that an independent actuarial review of the FHA`s Mutual Mortgage Insurance Fund (MMI) found that the fund`s capital reserve ratio had fallen to -1.44%, representing a negative economic value of $16.3 billion, HUD has actively sought to mitigate the fund`s insolvency risk. The powerful clearing authority set out in the final settlement and this mortgage letter represents the final step in HUD`s significant efforts to improve the security and soundness of FTAs and to transfer the risks associated with FHA-insured loans from the Department and thus from the U.S. taxpayer to FHA-approved mortgages, especially those participating in the LI program.
While the final settlement on the procedures HUD would follow to seek compensation from mortgagees has remained silent, mortgage letter 2013-10 provides details on this process. The mortgagee`s letter states that HUD will give lenders the opportunity to refute a compensation decision before making a final claim for compensation. In particular, if HUD detects fraud, misrepresentation, or serious and substantial violations of FHA creation requirements through post-approval technical reviews, appraisal reviews, on-site monitoring of mortgagees, audits conducted by huD`s Office of the Inspector General, or other means, huD will inform the LEM that a preliminary assessment based on the documentation of the file suggests that the loan contains material results, leaving the HUD at an unacceptable risk. .