www.hudclips.org 


U. S. Department of Housing and Urban Development
Washington, D.C. 20410-8000

 
May 16, 1997
 
OFFICE OF THE ASSISTANT SECRETARY
FOR HOUSING-FEDERAL HOUSING COMMISSIONER
 
MORTGAGEE LETTER 97-21
 
MEMORANDUM FOR:  ALL APPROVED MORTGAGEES
 
ATTENTION:  SERVICING MANAGERS (SINGLE FAMILY)
 
SUBJECT:  Loss Mitigation Performance Scores
 
     As referenced in Mortgagee Letter 96-61 , FHA is announcing
its first scores for lender or servicer (herein described as
lender) performance related to loss mitigation.  A lender's
performance, as referenced by these scores, will directly affect
loss mitigation incentive payments, certain claim reimbursements,
and delegated program authorities.
 
     FHA seeks to accomplish the following objectives in its loss
mitigation program:
 
     Maximize the opportunity for borrowers to retain home
     ownership and cure delinquencies on their mortgages.
 
     Mitigate losses resulting from foreclosure by using
     alternatives to foreclosure.
 
     Minimize paperwork and empower lenders to work directly
     with homeowners to determine the most appropriate loss
     mitigation tool.
 
     Provide lenders with performance-based incentives.
 
     Performance measurements enable FHA to define its assessment
of any servicing mortgagee's relative success in helping to
achieve these program objectives.  FHA has received a great deal
of input from the mortgage industry in developing a scoring
methodology.  We view this as an evolving process, and one which
will increase in practical impact as lenders become familiar with
it.
 
     FHA's approach in determining 1996 scores is as follows:
 
          The FHA's lender performance score for 1996 measures
          two components of a lender's loss mitigation
          performance.  It measures a lender's success in holding
          down its default rate (25 percent of overall score),
          and its actual compared to its potential costs to FHA
          (75 percent of overall score) relative to other lenders
          in a State.
 
          For a lender's performance to be scored within a State,
          the lender must have serviced at least 100 mortgages,
          reported at least one default, and received at least
          one dollar of claim payment in the year.  A lender's
          national score is the weighted average of its State
          scores.
 
     A lower score indicates better performance.  Bonus points
are subtracted from a lender's national score if its portfolio
contains one or more of the following: above median proportions
of first-time homebuyers, minority borrowers or borrowers in
underserved areas.
 
     Lenders were grouped and scored by their total number of
FHA-insured mortgages.  Those lenders servicing 5,000 or more
loans are considered high-volume lenders and are included in the
first group.  Lenders servicing between 1,000 and 5,000 mortgages
are considered medium-volume and are included in the second
group.  Lenders servicing less than 1,000 mortgages are con-
sidered low-volume lenders and are included in the third group.
 
     Lenders scoring within the top 25 percentile of each group
are eligible for the increased loss mitigation incentives.
 
How The Performance Scores Will Be Used
 
     Effective September 1, 1997, lenders with 1996 scores ranked
in the top 25 percentile of each of the three groups, high,
medium and low-volume, will receive the following benefits:
 
     1.   An additional $100 payment for each Special Forbearance
          Agreement executed on or after September 1, 1997.
 
     2.   Pre-foreclosure sale time-frames may be extended an
          additional two months without prior HUD approval.
 
     3.   For loans originated on or after September 1, 1997,
          lenders will be able to claim reimbursement of 75
          percent for foreclosure costs (an increase from the
          current allowance of 66 percent).  For loans originated
          prior to September 1, 1997, all lenders will continue
          to be reimbursed two thirds of the foreclosure costs.
 
The department intends to score performance on an annual basis.
Eligibility for these benefits will continue until the
publication of new performance scores.
 
     In addition, FHA will use these scores in selecting lenders
for Quality Assurance reviews.  While FHA recognizes that these
scores do not define all aspects related to loss mitigation
performance, we are confident that they do help to identify
opportunities for improvement in lender performance.
 
     The attached compilation of the lender performance scores
are based on input from the lending and servicing industry.  If
there are any questions or comments regarding the scoring process
please send them via the Internet to: joe_mccloskey@hud.gov.
 
Sincerely yours,
 

Nicolas P. Retsinas
Assistant Secretary for Housing-
Federal Housing Commissioner
 
Attachment: Loss Mitigation Performance Analysis
 
 Click Here to Download ATTACHMENT File