As part of SQC’s commitment to effective Servicing Oversight and customer service, SQC will periodically send informative memos to our partners.
FHA Update (FHA INFO #14-50, August 26, 2014) FHA recently announced an update on the rules governing post-payment interest charges.
Servicers are no longer allowed to charge the borrower for interest through the end of the month when the mortgage is paid in full before month end. Interest is only allowed through the date the mortgage is paid in full. Furthermore, interest is calculated as of the UPB of the date the prepayment is received, not the next installment due date.
The rule is effective for FHA-insured mortgages closed on or after January 21, 2015. SQC has updated the Paid-in-Full AOI to reflect the new changes in an effort to identify loans not yet meeting the upcoming changes.
Industry Round Up
SunTrust incurred a major penalty for failing to properly administer HAMP applications. According to the complaint, borrowers would apply for loan assistance through HAMP but SunTrust failed to increase the staff and infrastructure required to handle the volume of applications. In addition, SunTrust misreported borrowers to the credit agencies and foreclosed some loans while the borrowers were seeking assistance. The underlying problems that got SunTrust in trouble were very similar to the PHH lawsuit. PHH, a major sub servicer from Mt. Laurel, New Jersey, suffered a $16 million jury verdict for improper foreclosure on a borrower in California. According to the article in Mortgage Servicing News, PHH allowed a $616 escrow shortfall to snowball eventually resulting in foreclosure. Proper oversight could have detected the problem early.
Just recently, Flagstar Bank was fined $37.5 million for taking excessive time to process borrowers’ applications for foreclosure relief. This is the first fine leveled by the CFPB for violations of the Final Mortgage Servicing Rules that went into effect January 10, 2014. As with the SunTrust penalty and the PHH court case, Flagstar Bank failed to provide basic servicing to their borrowers.
Servicing has been an overlooked area in mortgages until recently and these regulatory actions point to the importance of proper oversight. Early detection of servicing errors may lead to decreased regulatory scrutiny and a better borrower experience.
