HUD posts updated servicing defect taxonomy for stakeholder review

The U.S. Department of Housing and Urban Development (HUD) on Wednesday posted an updated draft of its proposed defect taxonomy for servicing Federal Housing Administration (FHA) loan reviews.

The revised policy will “provide clear guidance to mortgage servicers regarding FHA’s servicing loan review process, FHA’s assessment of the severity of errors or non-compliance with its mortgage servicing policies, and the actions FHA may take in instances of servicer error or non-compliance” once finalized, according to HUD.

Upon being finalized, these revisions will be published in the dedicated servicing defect taxonomy section of HUD’s Single Family 4000.1 Handbook. Until then, HUD is requesting public feedback from stakeholders via the Single Family Housing Drafting Table, a portal for proposed but not yet implemented policies, through Aug. 26, 2024.

The current draft includes details on six defect areas that cover various FHA requirements throughout the lifecycle of loan servicing; “severity tier descriptions with common characteristics and distinctions based on the practical impact of noncompliance;” and different remedies for defects based on the severity tiers.

“HUD’s programs rely on the work of private partners, including mortgage servicers,” HUD acting secretary Adrianne Todman said in a statement. “We aim to provide clarity and transparency to these important business partners so that they can effectively use our programs to expand opportunities for sustainable homeownership.”

The revised proposal is designed to “provide additional clarity and certainty for mortgage servicers, and we invite stakeholders to provide input to ensure that the taxonomy is as useful as possible,” Todman added.

FHA officials explained that mortgage servicers have already provided a lot of valuable feedback, but this next round of feedback will help to round out the revisions even further.

“This latest draft takes into account the valuable feedback we’ve received from mortgage servicers, consumer advocates, and other stakeholders,” FHA Commissioner Julia Gordon said in a statement. “The feedback has been instrumental in our formulation of a proposal that we believe offers the clarity and consistency long sought by mortgage servicers.”

This is also designed to increase transparency in the policymaking process, according to Sarah Edelman, HUD’s deputy assistant secretary for single-family housing.

“FHA and lenders have had a positive experience using our origination defect taxonomy, and we expect this new tool will provide similar benefits for our mortgage servicing partners,” Edelman said.