JPMorgan Chase on how the FHA could bring back more banks

The Federal Housing Administration has signaled that it wants to renew efforts to bring banks back into the business through servicing improvements, and some speakers at a recent industry conference shared some thoughts on how it could be done.

A representative of JPMorgan Chase's bank unit, which like many reduced FHA activity after being hit by a wave of servicing and origination settlements after the Great Recession, said from his company's perspective the government lending and servicing business has attractions.

"It's really the best tool to reach first-time homebuyer and low-to-moderate income communities," Tom Land, vice president, agency relations at Chase, said at the Mortgage Bankers Association's servicing conference in Orlando, Florida.

Chase scaled back its FHA business after the financial crisis but never left it, and has increased activity more recently due to those opportunities and reforms seen to date, he said.

While critics question whether the efforts the FHA has made over the years to address banks' concerns about liabilities have worked given the decline in their market share, Land said some moves made related to originations have helped. Further servicing reforms could too.

More specifically, improvements to the servicing taxonomy more similar to those made previously for originations, plans to modernize face-to-face requirements and generally simplify distressed servicing could be effective, he said.

Having a better outlet for distressed properties in need of repair would be helpful as well, said Land.

"If FHA brings [about] some of these changes, I think servicers might find it enticing," he added.

The Department of Housing and Urban Development agency's recent move to more broadly streamline modifications was "a step in the right direction," Land said.

William Collins, acting director of the HUD National Servicing Center, said ideas under consideration include a strategy that would address modification challenges related to higher prevailing interest-rates by using a partial claim to allow for an additional payment drop. That decreased payment could be for a period of three to five years with amounts cut from the long-term obligation set aside in a second lien for later payments.

"This policy has to work for the big servicers and it has to work for the small servicers across the board," said Collins.

More broadly, HUD is working on bringing the relatively high expense involved in government servicing more in line with that for loans backed by government-sponsored enterprises Fannie Mae and Freddie Mac.

"We are working on equalizing the cost of servicing an FHA loan with the GSEs," Collins said