Submitted via Regulations.gov. September 4, 2015

Transcription

1 Submitted via Regulations.gov September 4, 2015 Regulations Division Office of General Counsel Department of Housing & Urban Development th Street, SW Room Washington DC RE: Single Family Mortgage Insurance Maximum Time Period for Filing Insurance Claims, Curtailment of Interest & Disallowance of Operating Expenses Incurred Beyond Certain Established Timeframes To Whom It May Concern: The 1 submits the following comments in support of the Federal Housing Administration s (FHA) proposed rule to establish a maximum deadline for mortgagees to file a claim under FHA s Single Family Mortgage Insurance Program and for the imposition of cost sharing mechanisms to encourage mortgagee compliance with Single Family Mortgage Insurance Program guidelines and rules. CAI Urges Adoption of Proposed Rule as Drafted CAI strongly supports FHA s rule as proposed and urges the agency to move forward without substantive change. CAI members believe FHA s proposal seeks to achieve for taxpayers the same ends that community association homeowners have sought through association lien priority statutes: compliance with state and federal law and FHA, Fannie Mae, Freddie Mac, and Ginnie Mae servicing requirements Arlington Blvd Suite 500 Falls Church, VA MAIN FAX 1 CAI is the only international organization dedicated to fostering competent, well-governed community associations. For more than 40 years, CAI has been the leader in providing education and resources to the volunteer homeowner leaders who govern community associations and the professionals who support them. CAI s more than 33,000 members include homeowners, community managers, community management firms, and other professionals and companies that provide products and services to community associations.

2 Page 2 CAI members see in the proposed rule the same concepts embodied in state statutes providing priority for community association liens. There must be a remedy sufficient to compel servicer compliance with servicing requirements. A lack of effective remedies, both at the state and federal levels, has been demonstrated to have profound, negative impacts on homeownership and the housing finance system. Community Association Model of Housing Community associations, also known as condominiums, homeowner associations and housing cooperatives, directly deliver services that were once the exclusive province of local government, including trash pickup, street paving, lighting, snow removal, maintenance of common elements and community infrastructure (roads, bridges, and storm water systems), disaster recovery, and providing for water and electric utility services. This transfer, or privatization, of services has become commonplace as the demand for housing has outpaced the ability of many local governments to provide services. In addition to these municipal services and community governance, community associations purchase insurance for common elements and establish operating budgets that include capital reserves so owners are not exposed to unanticipated special assessments to fund projected capital outlays. To ensure these vital community services and functions are fully funded, all owners pay assessments to the association, which are by law mandatory and lien-based. By joining together, association homeowners build stable communities and enable greater enjoyment of their homes. The community association model of housing has dramatically expanded in the United States over the past decades. In 2014, the Foundation for Community Association Research 2 estimated there are as many as 330,000 community associations nationwide, which account for more than 26 million housing units. More than 66 million Americans, almost 1 in 5 households, live in a community association. 3 Delayed Foreclosure & Conveyance Harm Association Homeowners & Residents Owners in community associations face significant financial pressures due to servicer and lender delays in foreclosing when a mortgage modification is not feasible, a mortgage modification has failed, or a property has been abandoned. This is due to the fact that financially distressed homeowners delinquent on their mortgage are also delinquent on their community assessments. 2 The Foundation for Community Association Research is the driving force for community association research, development, and scholarship, providing authoritative analysis on community association trends, issues, and operations. 3 Foundation for Community Association Research: National and State Statistical Review for 2014

3 Page 3 When an association homeowner is unable or unwilling to pay their share of community costs (for any reason) other homeowners must account for the lost revenue. Common responses to lost revenue are assessment increases, adoption of special assessments, borrowing from reserve funds, and a host of other unsustainable financial adjustments. In each case, the financial burden of ensuring continued critical association functions fall on the remaining homeowners while abandoned or neglected homes depress the value of homes in the community. These combined economic stressors higher housing costs and lower home values can devastate households and communities. Ironically, association homeowners who dig deeper into their paychecks and income to fund the operations of their financially distressed association provide a direct benefit to the very parties that are the source of the community s financial distress. By paying higher assessments and fees to ensure continued insurance coverage, maintenance of common property, trash and refuse collection, and utility services these owners preserve the value of lender or agency collateral without compensation. The costs only accrue as mortgagees and servicers take deliberate decisions to delay foreclosure and conveyance. Delayed Foreclosure & Conveyance Prompts Enforcement of Association Liens To protect the interests of all homeowners and residents, associations may record liens against properties where the owner or responsible party is delinquent in their assessments. As a last resort and in rare instances, communities will foreclose the association s lien to promote stabilization within the neighborhood and return homes to the market. In general, a lengthy delay by mortgagees and servicers in initiating or completing foreclosures forces an association to foreclose its lien. In 22 states and the District of Columbia, community associations are afforded lien priority. These statutes permit associations to recover a portion of the community s losses as a matter of law. 4 These statutes, based on the Uniform Condominium Act and the Uniform Common Interest Ownership Act, accord the association s lien priority over other liens, including a first mortgage. The intent of such statutes is to prompt lender and servicer compliance with foreclosure, property preservation, and property ownership obligations under state and federal law and regulation. These statutes also serve to prompt servicer compliance with contractual obligations to agencies such as FHA that facilitate access to mortgage credit or the secondary mortgage market. 4 A list of states and jurisdictions granting priority to association liens may be viewed here. Some states provide lien priority for condominium associations while others provide lien priority for all community associations.

4 Page 4 The effectiveness of association lien priority statues is self-evident. Servicers and lenders in these jurisdictions now clearly understand that willful delays in foreclosure, failure to comply with property preservation and ownership requirements, and failure to participate in association lien foreclosure proceedings may result in extinguishment of a first mortgage. A key reason association lien priority statutes are the most successful remedy for addressing systemic servicing failures is the impact of these statutes on business decisions within the servicing industry. Servicers understand there are significant financial and reputational risks that result from either incompetence or willful neglect of their obligations to community associations. Servicers face substantial sanction by FHA, Fannie Mae, and Freddie Mac for failure to protect the priority of the first mortgage pursuant to the servicing contract. This alters the business calculation of servicers and creditors generally, leading executives and managers to place a greater emphasis on compliance with state and federal laws, regulations and guidelines for the servicing of mortgages. By exercising this remedy provided in state statute, community associations have not only protected the interests of their homeowners, but also protect the Mutual Mortgage Insurance Fund and taxpayers from losses emanating from mortgagee and servicer negligence. Proposal Aligns Mortgagee & Servicer Interests with FHA, Association Homeowners While association lien priority has proven critical in resolving long-standing, systemic servicing failures in some community association housing markets, associations in states that do not offer the remedy of association lien priority are powerless in the face of intentional delays in unavoidable foreclosure and property conveyance. When FHA mortgagees and servicers intentionally delay property conveyance to the Secretary, neighborhood values face downward pressure and the community delayed recovery. It is clear FHA understands the negative impact on REO sales and the additional losses that accrue to the Mutual Mortgage Insurance Fund when foreclosure and conveyance is needlessly (indeed, purposefully) delayed. Community association homeowners experience substantially similar negative outcomes from what are essentially business decisions on the part of FHA mortgagees and servicers. Establishing a deadline for claims submission and other cost-sharing requirements if servicers fail to comply with standards in the Single Family Servicing Handbook alters the business calculation, giving greater emphasis to compliance. Not only will this improve outcomes for homeowners and taxpayers, it will benefit the servicing industry by rewarding firms that have a strong corporate culture of compliance.

5 Page 5 FHA s proposed rule, if adopted and implemented, will be a substantial improvement on a nationwide basis for all community association homeowners, will enhance the value of FHAsupported lending in these communities, and result in substantial savings for homeowners and taxpayers. CAI members commend FHA for its proposal and look forward to its adoption and enforcement in the marketplace. If you have any questions regarding this letter or if CAI may be of any service, do not hesitate to contact me at (703) Sincerely, Dawn Bauman, CAE Senior Vice President, Government and Public Affairs