FHA Proposes Changes to Defect Taxonomy

The Federal Housing Administration in recent days posted draft updates for comment on the defect taxonomy for servicing loan reviews, which is used to identify loan-level defects and remedies for these shortcomings. The proposed updates—which follow an April update to the servicing and loss mitigation section of FHA’s Single Family Housing Policy Handbook—are intended to provide greater transparency into the servicing loan review process.

Among the proposed updates are six new defect areas that alight with FHA requirements through the servicing lifecycle: servicer operations, account administration, delinquent and default servicing, loss mitigation processing, home retention and home disposition. FHA also included severity tier descriptions that explain how FHA determines whether defects require corrective servicing action or other response, and expanded, servicing-specific remedies that align with the severity tiers listed in each area.

The American Bankers Association and other housing and finance groups have long called for changes to the defect taxonomy to provide additional clarity and transparency for servicers. Comments on the proposed taxonomy will be due Dec. 27.