ABA: FHA Window on Insurance Claims Unworkable

The Department of Housing and Urban Development’s proposal limiting the window under which an FHA-approved lender would be able to file a mortgage insurance claim is unworkable and should be withdrawn, ABA wrote in a comment letter Friday.

Under the proposal, lenders would be required to file a claim within three months of securing title to a home post-foreclosure or after selling it to a third party. In addition, lenders could not file claims more than 12 months after the end of HUD’s “reasonable diligence timeframe,” which varies state by state. Failure to file timely claims would result in an automatic termination of the FHA insurance contract.

ABA warned that the unrealistic deadlines and overly harsh penalty would discourage lender participation in the FHA program. “As a result low- and moderate-income borrowers and low-wealth borrowers would have more difficulty obtaining mortgage credit,” ABA said. “This would not be a desirable public policy outcome.”