WaterfallCalc, a provider of expert guidance and loss mitigation technology for mortgage servicers, has released the FHA Payment Supplement Agreement documentation and automated claim process ahead of the January 2025 deadline imposed by the U.S. Department of Housing and Urban Development.
The PSA program is a new loss mitigation requirement designed to help struggling FHA borrowers by combining a partial FHA claim to bring loans current with a monthly principal reduction to decrease monthly payments for a three-year period.
Donna Schmidt, founder of DLS Servicing and WaterfallCalc, a provider of automated loss mitigation technology that helps servicers quickly and accurately evaluate any default scenario, says both companies have all the legal documents and waterfall calculations servicers need to begin offering borrowers relief under the PSA immediately.
“The PSA program is both innovative and smart, but creates multiple challenges for mortgage servicers,” Schmidt says in a release. “For example, most servicing systems are not set up to handle the PSA’s three-year payment plan. But if a servicer can find an adequate workaround, the fact that WaterfallCalc has the calculations, documents and FHA claim filing ready to go, can mean that our clients are well ahead of the game.”
The PSA program is intended to help FHA borrowers reduce their mortgage payment by 25% without a loan modification. Because roughly 85% of all mortgage loans have interest rates under 6%, and current interest rates are over 7%, a loan modification would not help most FHA borrowers. The PSA enables mortgage servicers to make a claim to the FHA for a lump sum payment, part of which is used to buy down the borrower’s principal over a three-year period.
While servicers aren’t required to implement the PSA until January 1, 2025, Schmidt said there are several benefits to implementing the program now. Borrowers are able to keep their low interest rate and still reduce their payment, so they receive immediate financial relief. Additionally, servicers are better positioned to retain the borrower’s loan and reduce their runoff rate, should interest rates drop in the future.
The PSA also uses fewer partial claim funds (up to 60% less) to help servicers meet the 25% payment reduction goal, which helps make more funds available later if the borrower needs additional assistance. If the target 25% reduced payment isn’t possible, the borrower can be offered a partial claim or a recovery loan modification, whichever can reinstate the loan with the lowest possible payment.
Mortgage servicers that work with DLS Servicing can implement the PSA in as little as two days, Schmidt said. In addition to helping servicers implement the PSA program, DLS Servicing provides advice, training and practical strategies for navigating the complexities of the PSA as well as handling the new waterfall’s unique accounting and reporting requirements.
“Essex prides itself on being a leading servicer of GNMA loans, and our partnership with WaterfallCalc has been a key factor in this success,” says Nathan Sans, chief servicing officer at Essex Mortgage – a WaterfallCalc client. “Donna and her team’s exceptional expertise and commitment ensure that we can provide top-tier support to our borrowers. By swiftly implementing innovative programs like the FHA PSA, we are better equipped to assist borrowers facing financial hardships, ultimately helping them retain their homes and achieve financial stability.”
“We have a long track record of being the first out of the gate when new loss mitigation requirements are handed down,” Schmidt adds. “Being able to implement the PSA program today means our clients can stay compliant and reduce their losses, while struggling borrowers receive the assistance they need to keep their homes—which has been our primary mission since day one.”
