The Federal Housing Administration (FHA) has announced in Mortgagee Letter 2023-20 that it has increased the allowable property inspection fee limits for property inspections of single-family homes associated with defaulted FHA-insured mortgages.
These inspections are an important component of mortgage servicers’ preservation and the protection of properties, and are vital to safeguarding neighborhoods from blight arising from inadequately maintained unoccupied homes.
With these latest updates in Mortgagee Letter 2023-20, FHA has increased fees for certain allowable inspection categories, making its fee limitations consistent with those in use by other industry participants. FHA intends to evaluate allowable parameters for other property preservation expenses in the future.
“This is the first step in updating our policies governing property and preservation fees,” said HUD Deputy Assistant Secretary for Single Family Housing Sarah J. Edelman. “Maintaining and preserving vacant properties is important to us, and we know it is important to the residents and communities where these properties are located.”
The new allowable inspection fees become effective immediately.
In late March of 2022, the FHA published Mortgagee Letter (ML) 2022-06, Establishing the Claims Standard for Reasonable Payments for Property Preservation and Protection Costs, which updated the policy for property preservation and protection (P&P) costs by establishing a standard for HUD’s reimbursement of reasonable P&P costs incurred in connection with Claims without Conveyance of Title (CWCOT) and Conveyance claims.
The CWCOT program was implemented under Mortgagee Letter 87-20, dated June 23, 1987, and provided mortgagees with the procedures for bidding and payment of claims under the Single-Family FHA Mortgage Insurance program. The CWCOT program was designed to reduce the number of single-family properties added to HUD inventory’s and allow mortgagees to file a claim without conveying title. However, the program was ineffective in its application to vacant and non-owner occupied properties.
HUD eventually incurred considerable losses from appraisal and advertising costs as well as from overhead expenses to operate the program. Only 6% of the properties processed through CWCOT were not conveyed to HUD.
FHA’s policy update ensured that HUD reimburses mortgagees for P&P costs in accordance with FHA’s claim regulations, which provide for reimbursement of reasonable payments for P&P costs. Mortgagee payments for P&P costs are considered reasonable if they are incurred during the P&P period, consisting of the mortgagee’s Reasonable Diligence Time Frame and Conveyance or CWCOT Time Frame, and meet the eligibility and allowance requirements set forth in FHA requirements.