Reducing Loss Severity on FHA Loans in Default

Posted by DIMONT on July 12, 2016 at 9:30 AM

Filing claims on defaulted loans, whether they are hazard insurance claims on policies on real estate collateral or guaranty claims with federal government agencies for loss coverage on a federally insured loan, has always been important for servicers. This is particularly true for servicers of FHA loans.

There are two critical areas in which servicers can effectively limit their losses on defaulted FHA loans. The first involves collecting on hazard insurance that is in-force on the properties during the time the servicer is in charge of the asset, before it has been sold back into the market through REO disposition. The second is through effective handling of investor loss claims to the FHA after the real estate sales process is complete. We cover both in a new white paper that is available now on our website.

Unfortunately, the business of filing hazard insurance claims on FHA-insured properties involves a rigorous process with a high risk of loss for the servicer and investor. Likewise, processing guaranty claims with the federal government is a specialized and labor-intensive process that few servicers are prepared to deal with on their own. In our paper, we talk about how the most successful servicers are dealing with these issues today.

Given the success of the FHA’s insured loan program over the past several years and the fact that defaults on FHA loans are highest 3-5 years after origination, we expect to see FHA defaults rise to their peak next summer. For servicers that are not prepared, it will constitute a crisis.

Collateral losses suffered by FHA servicers during the coming crisis will be lower for those servicers who understand the hazard insurance claims and investor claims processes and have good partners in place to help them navigate through them. In this paper, we will address both of these important processes and provide information on what servicers must do now to be prepared for the near-future.

To make sure you’re prepared, download our white paper titled, “The Big Picture on Collateral Loss Mitigation for FHA Loans” today.

Download White Paper:  Compliance Doesn’t Have  to Be a Burden 

Topics: Hazard Insurance