HUD Updates on CWCOT Enhancements

The Federal Housing Administration (FHA) today published Mortgagee Letter (ML) 2020-21, “Enhancements to FHA’s Claims Without Conveyance of Title (CWCOT) Procedures.”

According to the FHA's statement, the guidance in the ML enhances CWCOT procedures by:

• Allowing a second appraisal upon vacancy for a property that had an exterior-only appraisal, where an interior appraisal could not be obtained;
• Allowing mortgagees to submit eviction costs and certain eligible property preservation expenses incurred during post-foreclosure sales opportunities;
• Allowing mortgagees to submit eviction costs and certain eligible property preservation expenses incurred during post-foreclosure sales opportunities;
• Updating the policy and allowable fee structure related to independent third-party providers that conduct foreclosure sales or post-foreclosure sales efforts under CWCOT procedures; and
• Regularly updating discounts in FHA Connection (FHAC) and change to tier-based pricing factors based on a property’s location, occupancy status, and appraised value. After the property’s appraised value has been established and the Commissioner’s Adjusted Fair Market Value (CAFMV) has been determined, authorized mortgagees may access the CAFMV via the link in FHAC at: https://entp.hud.gov/clas/index.cfm.

The CWCOT program began in 2013 as an FHA claim option where insurance benefits are paid to a mortgagee after the sale of the property to a third-party purchaser at foreclosure of the FHA-insured mortgage or through post-foreclosure sales efforts.

In its statement, the FHA explains that these latest CWCOT enhancements announced in the ML take into consideration public feedback received earlier this year when the draft ML that was posted on the Single-Family Housing Drafting Table.

The FHA also states that these enhancements will make FHA’s CWCOT program “more viable for foreclosure sales associated with defaulted FHA-insured mortgages."

The Department of Housing and Urban Development (HUD) had previously announced changes to the FHA’s CWCOT program this past February.

Changes proposed by HUD included:

• Providing for a second appraisal once a property becomes vacant
• Expanding the number of states for marketing services and auction services into the judicial states
• Modifying the “haircut” structure in a manner more specific to the value of that property
• Changes to reimbursement for property preservation and eviction expenses

“We think these changes will improve the take-up rate of the CWCOT program, which has already gone from 25% to 75%,” said Dror Oppenheimer, Senior Advisor to the Assistant Secretary for Housing—Federal Housing Commissioner at HUD at the time. “We think this is going to expand way beyond the 75% and provide real benefit for servicers and the FHA.”