Banking, Consumer Groups Call for Changes to FHA’s Proposed Defect Taxonomy

The American Bankers Association, the Housing Policy Council and the Mortgage Bankers Association today offered comments on recent proposed changes to a section of the Federal Housing Administration’s Single-Family Housing Policy Handbook related to the servicing defect taxonomy. The defect taxonomy outlines the remedies the agency may seek if it finds loan-level defects pertaining to servicing.

In the letter, the groups raised concern that the current proposal fails to provide sufficient detail or clarity regarding defects most likely to occur, severity ties, and appropriate remedies, and offered specific recommendations on how it could be improved. The groups urged FHA to restructure the proposed servicing defect taxonomy and engage with stakeholders to develop a new and more robust taxonomy.

In a separate letter, ABA and HPC joined with the Center for Responsible Lending, the National Consumer Law Center and others in urging FHA not to finalize the taxonomy and outlining characteristics of a successful taxonomy. These characteristics include: classifying which violations of HUD policies are most severe and which are not; assessing severity based on the level of concrete harm the conduct poses to borrowers and FHA; assigning a range of appropriate remedies for each specific violation; stating the aggravating and mitigating factors HUD will consider in determining the particular remedy and the process for considering these factors; and describing how HUD will address systemic issues identified in the evaluation process.