HUD Regulations and Policies Concerning End-Stage Default
This brief examines aspects of HUD regulations and policies for households in end-stage default, highlights how these policies and requirements are inconsistently applied, and suggests changes that might lead to greater compliance and utilization.
This Issue Brief concerns HUD/FHA’s rules regarding mortgage servicing, loss mitigation, and property conveyance, which are derived from federal regulations and carry the force of law: a violation can be grounds for legal action. HUD launched its loss mitigation program in 1996 in an effort to provide lenders/servicers with specific steps they were required to take. As with all HUD initiatives related to homeownership, this program aims to help borrowers retain their homes while also reducing losses to FHA’s Mutual Mortgage Insurance Fund. Despite the specificity of HUD’s requirements, some servicers are falling short in assisting borrowers through the loss mitigation process.
Three aspects of HUD’s regulations and policies pertaining to households facing end-stage default are examined. The first, the requirement that the lender offer a face-to-face interview to the mortgagor prior to foreclosure, offers an example of mortgagee noncompliance with HUD rules and HUD enforcement failure. The second, which provides an option for foreclosed homes to be conveyed with occupants, is an example of a regulation that only has been permitted infrequently. Lastly, this Issue Brief examines restrictions limiting homeowners’ ability to buy back their foreclosed home from an entity such as a nonprofit that has purchased the home on their behalf, thereby enabling the household to retain ownership with a renegotiated mortgage. Overall, the Brief highlights how these policies and requirements are infrequently or inconsistently adhered to, attempts to identify why that is the case, considers what the consequences may be, and suggests changes that might lead to greater compliance and utilization.