The benefit of making insured loans is if the borrower defaults and the servicer meets all guidelines, a claim can be filed with the investor to recover part or all of the loss. But the government carefully regulates this process, and servicers that fail to meet all requirements can lose part or all of the potential claim.
While every investor requires servicers to work within the same time frame, different servicers handle the process in their own ways. The standard 30-day clock starts ticking for everyone from the date of a terminable action, and servicers must be prepared to submit their initial claims within that time frame.
However, once that claim is filed, it is important to note that each investor handles the claims process differently. An FHA claim filed to the Department of Housing and Urban Development will be different from a VA claim filed to the Department of Veteran Affairs. Similarly, a USDA claim filed to the United States Department of Agriculture in rural housing will be quite different from a Fannie Mae or Freddie Mac claim.
To have the best chance of fully complying with the various guidelines, servicers are advised to keep the following points in mind:
- Minimize Curtailment
One area that servicers often find themselves losing out on is recovering interest. For instance, FHA will reimburse the servicer for interest lost during delinquency, but only if the guideline is followed and all timeframes are met. If the claim is late, the FHA will curtail the same number of days’ worth of interest. The same is true for the VA and USDA.
This gets more serious for claims filed with other government agencies and investors. Fannie Mae and Freddie Mac can deny the entire claim if it’s not filed within 30 or 45 days, respectively. Private mortgage insurance companies often treat this the same way, denying the claim outright if it’s filed late.
- Reduce Recovery Timeframes
Time is money and that is certainly true when it comes to filing investor claims. The longer it takes the servicer to navigate this process, the higher the likelihood of a full claim denial. On the other hand, the faster the claim is filed, the more quickly the servicer can recover their funds. This is vitally important to servicers because the expenses they pay during delinquency represent hard money they are parting with as they pay vendors.
- Increase Investor Scoring
Servicers should keep in mind that every investor they serve is scoring them. Depending upon how the servicer performs on their vendor scorecard, they can receive various bonuses for their performance.
For instance, HUD will pay the servicer $250 for closing a modification, but if the servicer has not filed their claims on time or reports processes improperly, HUD can withhold some or all of the money owed. Taken to the extreme, a servicer could actually lose the right to service certain loans due to their poor performance.
- Provide the Proper Data for Your Claims
Servicers should bear in mind that they will only get one chance to present their claim in its best possible light. Having all of the required data and making sure that data is accurate is extremely important to getting the claim paid fully and on time, the first time.
- Include the Correct Supporting Data
The servicer must not forget that the data submitted on the claim must be supported. If a claim is filed for an $800 attorney fee, be sure the invoice for that attorney’s fee is included in your submission.
- File Extension Requests as Required
Certain mitigating circumstances make it possible for servicers to extend the timeline, but any request for extension must be file at the proper time. Investors do not automatically grant servicer requests without first requiring the servicer to file the proper paperwork.
What the Nation’s Best Servicers Do
Naturally, with so much to focus on and so much to potentially lose for any mistake, the best servicers are reaching out to experienced partners very early in the process. Companies like ours are experts in this process, and we can shepherd servicers through the claims filing and recovery work quickly and effectively.
Even with professional help, servicers must always focus on servicing by the guidelines. Servicers must understand the guidelines and how they affect every area and component of their business. Beyond that, servicers must ensure that all vendors are operating together or should choose a fully integrated solution to ensure that the claims process is moving smoothly toward meeting all investor requirements.