A mortgagee letter published by the U.S. Department of Housing and Urban Development (HUD) this week outlined new, modernized requirements for loss mitigation consultations with borrowers in default.
The updated requirements essentially build on practices adopted to reach financially struggling borrowers of Federal Housing Administration (FHA) loans during the COVID-19 pandemic.
Mortgagees are required to have a loss mitigation consultation interview with a borrower facing default (or make a reasonable effort to arrange one no later than the 61st day of delinquency). Previously, that consultation was required to be an in-person meeting, but to better provide help to borrowers during the pandemic, that requirement was temporarily waived in March of 2020, allowing mortgagees to contact and interview mortgagors via phone, email, and video calling services. According to HUD, more than 20 million borrowers in default were provided loss mitigation assistance through the change in policy.
With that in mind, a final rule was proposed in 2023 and codified in the Federal Register this past August eliminating the in-person requirement for the loss mitigation consultation. HUD’s new letter reinforces the changes established by that rule and provides further guidelines: Lenders may now have a loss mitigation consultation either face to face, over the phone, via email or using video conference technology. The mortgagee letter specifically names video calling services like Skype, Zoom, Webex, Microsoft Teams, FaceTime and GoTo Meeting, but says that other technology may be used.
A more specific definition of a loss mitigation consultation is included in the letter, including when and how to conduct the consultation; training of employees who conduct the consultation; and an explicit prohibition of using chatbots or artificial intelligence to conduct the consultation. The letter also specifically notes that the mortgagee must not charge the borrower for arranging and conducting the loss mitigation consultation.
The rule also expands the meeting requirement to apply to all borrowers in default, including borrowers who don’t reside in the mortgaged property and borrowers with a mortgaged property more than 200 miles away from one of their mortgagee’s locations.
“HUD recognizes that substantial advancements have been made in communication technology, remote communication options have increased, and consumer preferences have shifted to favor greater flexibility and more options for engagement,” the mortgagee letter read. “HUD has reviewed options to leverage these changes to better assist delinquent borrowers, including delinquent borrowers with disabilities.”
