COVID-19 Forbearance Reporting — Office of Single Family Housing, HUD (Audit Report Number: 2021-KC-0005, August 16, 2021)
Summary
Audit Report Number 2021-KC-0005, dated August 16, 2021, from the HUD Office of Inspector General to HUD's Deputy Assistant Secretary for Single Family Housing. The audit compared COVID-19 forbearance data in HUD's Single Family Default Monitoring System (SFDMS) with loan data from five sampled servicers that serviced about one-third of the FHA portfolio. It reports that servicer records showed 319,028 loans in forbearance as of October 31, 2020, of which 284,818 were reported in formal or special forbearance in SFDMS, and that the remaining loans were properly accounted for. It finds servicers generally complied with reporting requirements, using the national emergency default reason code for 97.7 percent of defaulted loans in forbearance. The report contains no recommendations and includes scope, methodology, and criteria appendixes.
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U.S. Department of Housing and
Urban Development
Office of Single Family Housing
Washington, DC
COVID-19 Forbearance Reporting
Office of Audit Audit Report Number: 2021-KC-0005
Kansas City, KS August 16, 2021
To: Julienne Y. Joseph
Deputy Assistant Secretary for Single Family Housing, HU
//signed//
From: Kilah S. White
Assistant Inspector General for Audit, GA
Subject: COVID-19 Forbearance Data in HUD’s Single Family Default Monitoring
System Generally Agreed With Information Maintained by Loan Servicers
Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector
General’s (OIG) final results of our review of Federal Housing Administration-insured loans to
determine whether COVID-19 forbearance data available in HUD’s Single Family Default
Monitoring System was generally consistent with the loan information maintained by loan
servicers reviewed.
HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. For each recommendation without a management decision,
please respond and provide status reports in accordance with the HUD Handbook. Please furnish
us copies of any correspondence or directives issued because of the audit.
The Inspector General Act, Title 5 United States Code, appendix 8M, requires that OIG post its
reports on the OIG website. Accordingly, this report will be posted at https://www.hudoig.gov.
If you have any questions or comments about this report, please do not hesitate to call Carrie
Gray, Acting Audit Director, at (314) 539-6339.
Office of Audit
451 7th Street, SW, Room 8180, Washington, DC 20410
Phone (202) 708-0364, Fax (202) 708-1783
Visit the Office of Inspector General website at https://www.hudoig.gov.
Audit Report Number: 2021-KC-0005
Date: August 16, 2021
Highlights COVID-19 Forbearance Data in HUD’s Single Family Default
Monitoring System Generally Agreed With Information
Maintained by Loan Servicers Reviewed
What We
Audited and Why What We Found
We audited lender reporting COVID-19 forbearance data available in SFDMS were generally
of COVID-19 forbearances consistent with the information maintained by loan servicers reviewed.
for Federal Housing Nearly 90 percent of the loans in forbearance, according to the servicer
Administration (FHA)- records reviewed, were reported as such by the servicers in SFDMS. The
insured loans in the Single remaining 10 percent of loans in forbearance, according to servicer records
Family Default Monitoring but not reported as forbearances in SFDMS, were properly accounted for.
System (SFDMS). A In addition, key metrics showed that servicers generally complied with
COVID-19 forbearance is a HUD’s forbearance reporting requirements.
pause in mortgage payments
authorized by the CARES
Act. We compared default
reporting data from SFDMS
to loan data provided by five
sampled servicing lenders
that serviced a third of the
FHA single-family
portfolio.
What We Recommend
We initiated this audit to
find out whether HUD This report contains no recommendations.
received accurate monthly
default reporting records
from servicers. Our audit
objective was to determine
whether COVID-19
forbearance data available in
SFDMS were consistent
with the information
maintained by loan
servicers.
For more information, visit www.hudoig.gov or contact
Carrie Gray at (314) 539-6339 or cgray@hudoig.gov.
Table of Contents
Background and Objective......................................................................................3
Results of Audit ........................................................................................................4
COVID-19 Forbearance Data in SFDMS Were Generally Consistent With the Data
Maintained by Loan Servicers Reviewed ....................................................................... 4
Scope and Methodology ...........................................................................................6
Internal Controls ......................................................................................................8
Appendixes ................................................................................................................9
A. Auditee Comments...................................................................................................... 9
B. Analysis of Loan Servicer Data and SFDMS Data ................................................ 10
C. Criteria....................................................................................................................... 12
2
Background and Objective
On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security
(CARES) Act (Public Law 116-136) into law. The CARES Act provides a mortgage payment
forbearance option for all borrowers who, either directly or indirectly, suffer a financial hardship
due to the COVID-19 national emergency. Under the CARES Act, borrowers are entitled to
request an initial forbearance of their monthly mortgage payments for up to 180 days and may
request up to an additional 180 days. For the borrowers who requested their initial COVID-19
forbearance on or before June 30, 2020, if needed, the borrower may request and the lender must
approve up to two additional 3-month COVID-19 forbearance periods. A forbearance allows for
reduced or suspended payments without specific terms of repayment.
The Federal Housing Administration (FHA) provides mortgage insurance on loans made by
FHA-approved lenders. Since its inception in 1934, FHA has insured nearly 50 million
mortgages. FHA mortgage insurance provides lenders with protection against losses as the result
of borrowers’ defaulting on their mortgage loans. The lenders bear less risk because FHA will
pay a claim to the lender in the event of a borrower’s default.
The Single Family Default Monitoring System (SFDMS) is the U.S. Department of Housing and
Urban Development’s (HUD) system for tracking the loan servicing lender’s (servicer) data on
delinquent mortgages until a delinquency is resolved through reinstatement or termination. The
servicers must report in SFDMS the delinquency or default status codes that reflect the stage of
delinquency or servicer action. Servicers are required to submit SFDMS reports to HUD
monthly and include the reason for the default.
According to information reported by servicers in SFDMS, in October 2020, more than 800,000
FHA-insured loans were reported as in forbearance, as shown in the table below. SFDMS uses
code 06 for formal forbearance and code 09 for special forbearance. COVID-19 forbearances
are to be coded as formal forbearances.
Number of Percent of active
October 2020 loan status loans portfolio
Loans reported with a formal forbearance code 816,565 10.27%
Loans reported with a special forbearance code 8,135 .10%
Active Portfolio 7,953,267
Our audit objective was to determine whether COVID-19 forbearance data available in SFDMS
were consistent with the information maintained by servicers.
3
Results of Audit
COVID-19 Forbearance Data in SFDMS Were Generally Consistent
With the Data Maintained by Loan Servicers Reviewed
COVID-19 forbearance data available in SFDMS were generally consistent with the information
maintained by loan servicers reviewed. Nearly 90 percent of the loans in forbearance, according
to the servicer records reviewed, were reported as such by the servicers in SFDMS. The
remaining 10 percent of loans in forbearance, according to servicer records but not reported as
forbearances in SFDMS, were properly accounted for. In addition, key metrics showed that
servicers generally complied with HUD’s reporting requirements.
Nearly All Loans in Forbearance Were Properly Reported
Nearly 90 percent of the loans in forbearance, according to the servicer records, were reported as
such by the servicers in SFDMS. This figure is based on data as of October 31, 2020, from five
servicers that collectively serviced about one-third of the FHA portfolio. (See Scope and
Methodology for sampling information.) Servicer records indicated that a total of 319,028 loans
were in forbearance as of October 31, 2020, while SFDMS showed that 284,818 of these loans
were reported in formal or special forbearance during the month. (See appendix B, table 1.)
HUD Handbook 4000.1 required servicers to report the default status codes of all delinquent
mortgages, which accurately reflected the stage of delinquency, and update that status monthly in
SFDMS. (See appendix C.)
The remaining 10 percent of the 319,028 loans in forbearance (9,278 + 23,034) that were not
reported as forbearances in SFDMS were either undergoing additional loss mitigation or were
not delinquent (see appendix B, table 1) and were instead reported with status codes that were
otherwise consistent with FHA directives. Servicers reported 9,278 of their loans in forbearance
to SFDMS using a loss mitigation code rather than a forbearance code. HUD Handbook 4000.1
requires that on a monthly basis, servicers must report status codes for all mortgages that are 30,
60, and 90 days or more delinquent as of the last day of the month. Servicers are required to
report the applicable status codes for new delinquencies, open delinquencies and delinquencies
resolved during each month. The SFDMS training guide also instructs servicers to report a status
code until the status of the loan changes and another status code applies. While the guide says a
servicer can report more than one code, it says it is not necessary to do so. An interview with a
HUD program director revealed that HUD expected servicers to stop reporting forbearance
default codes when a loan was undergoing additional loss mitigation, such as a partial claim,
started toward the end of the forbearance. While the reporting progression aligned with HUD’s
expectations, servicer forbearance records received did not contain information to allow us to
corroborate correct loss mitigation reporting.1 Servicers did not report an additional subset of
23,034 in-forbearance but nondelinquent loans to SFDMS as being in forbearance or loss
mitigation. HUD’s SFDMS training guide did not provide an avenue for servicers to report the
1
See footnote 2
4
forbearance status of loans that had no outstanding loan payments. It explicitly stated that
servicers should report only loans that were 30 days delinquent. Specifically, HUD Mortgagee
Letter 2020-13 required servicers to report a loan as delinquent before reporting the forbearance
code.
Other Key Metrics Revealed General Default Reporting Compliance
Key metrics showed that the five servicers generally complied with HUD’s reporting
requirements. We examined the oldest unpaid installment dates, forbearance codes, and default
reason codes reported to determine compliance with HUD requirements. Nearly all of the loans
with default records had matching oldest unpaid installment dates in SFDMS and servicer data.
(See appendix B, table 2.) These servicers also appeared to use the national emergency default
reason code correctly. HUD Mortgagee Letter 2020-13 instructed servicers to code COVID-19
forbearances as formal forbearances using the national emergency default reason code. Servicers
reported the national emergency default reason code for 97.7 percent of the defaulted loans in
forbearance. (See appendix B, table 3.) These servicers used the national emergency default
reason code for only a small number of special forbearances. (See appendix B, table 4.)
Recommendations
There are no recommendations.
5
Scope and Methodology
We performed our audit work between October 2020 and March 2021. We did not conduct
onsite fieldwork for this audit. Our audit period covered October 2020.
To accomplish our audit objective, we
interviewed relevant HUD management and staff,
reviewed relevant HUD requirements,
reviewed relevant training guides, and
reviewed FHA’s audited financial statements.
We relied in part on data maintained by HUD in its Single Family Data Warehouse (SFDW)
system. SFDW is a large and extensive collection of database tables, organized and dedicated to
support the analysis, verification, and publication of single-family housing data. Specifically, we
relied on this system to identify loans that were reported with default codes in the SFDMS
default history table during our audit period. The default history table contains all historical
default reporting records submitted by servicers in each reporting month. We also relied in part
on data maintained by the sampled servicers. Although we did not perform a detailed assessment
of the reliability of the data, we determined that the computer-processed data were sufficiently
reliable for our purposes because we verified the SFDMS data with the data provided by the
servicers in our sample.
To select a sample of five servicers for this audit, we obtained the data reported for August 2020
from the SFDMS default history table. Of the 25 largest FHA servicers, we selected the 3
servicers with the largest FHA portfolios and the 2 servicers with the lowest and highest
percentage of their portfolio reported as being in forbearance. We used these selection criteria to
obtain substantial coverage of the overall portfolio and a range of forbearance utilization. The
three largest FHA servicers were Wells Fargo, PennyMac, and LoanCare. The two servicers
with the lowest and highest percentage of their portfolio reported as being in forbearance were
PNC Bank and Midfirst Bank, as shown in the table below. The entire active portfolio consisted
of more than 8 million loans, and these servicers represented about one-third of the FHA market.
From these servicers, we requested loan data as of October 31, 2020, to compare to the data
maintained in HUD’s SFDMS. The results of the review of these five servicers’ data cannot be
projected to the rest of FHA’s active portfolio.
Active portfolio Portfolio in
Servicer in August 2020 Market share (%) forbearance (%)
Wells Fargo Bank 1,116,648 13.9 12.8
PennyMac Loan Services 670,051 8.4 14
LoanCare 516,353 6.4 12.1
Midfirst Bank 229,616 2.9 23.2
PNC Bank 75,959 0.9 4.6
Total of Reviewed Servicers 2,608,627
Total entire active portfolio 8,011,188 - -
6
We obtained a list of active loans serviced by the selected servicers that had an active default
episode from SFDW for the October 2020 reporting period. Specifically, we obtained defaulted
loan data from the default history table and identified the default status of each loan, the date of
the oldest unpaid instalment, and the default reason codes. We related the loan data obtained
from the servicers to the loan data obtained from SFDW to identify the degree to which the two
data sources agreed. The results of these comparisons are shown in appendix B.
We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objective(s). We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.
7
Internal Controls
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to
effectiveness and efficiency of operations,
reliability of financial reporting, and
compliance with applicable laws and regulations.
Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.
Relevant Internal Controls
We determined that the following internal controls were relevant to our audit objective:
Controls to ensure that COVID-19 forbearance data available in SFDMS were consistent
with the loan information maintained by loan servicers.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, the
reasonable opportunity to prevent, detect, or correct (1) impairments to effectiveness or
efficiency of operations, (2) misstatements in financial or performance information, or (3)
violations of laws and regulations on a timely basis.
Because internal control was not determined to be significant to the audit objective and we did
not identify deficiencies during our audit, generally accepted government auditing standards did
not require an assessment of controls. Accordingly, we do not express an opinion on the
effectiveness of HUD's internal control.
Separate Communication of Minor Deficiencies
We reported minor deficiencies to the auditee in a separate management letter.2
2
These minor deficiencies included loans still being reported as forbearance after the initial forbearance period
expired, loans reported as both formal forbearance and foreclosure moratorium, and loans in forbearance that
may have been misreported. None of these issues were significant enough to be presented in the audit report.
8
Appendixes
Appendix A
Auditee Comments
The Office of Single Family Housing chose not to provide any comments to include in the final
report.
9
Appendix B
Analysis of Servicer Data and SFDMS Data
Table 1: Detailed forbearance reporting in October 2020
SFDMS reporting of loans in forbearance per servicer records
Percentage
appropriately
Reported to Not reported to reported (or
Loans in SFDMS as SFDMS as forbearance no reason to
forbearance Reported to receiving loss or loss mitigation believe
per servicer SFDMS as mitigation assistance, but loans misreported)
Servicer records forbearance attention were not delinquent in SFDMS 3,4
LoanCare 69,051 58,930 2,863 6,955 99.56%
Midfirst 99.09%
58,489 54,144 106 3,707
Bank
PennyMac 77,102 71,804 265 4,778 99.67%
PNC Bank 4,408 123 3,383 751 96.57%
Wells Fargo 109,978 99,813 2,661 6,843 99.40%
Total 319,028 284,814 (89%) 9,278 (3%) 23,034 (7%) 99.4%
Explanation of default status codes comprising loss mitigation attention
Status Definition Guidance for usage: use selected code to advise HUD that…
code
08 Borrower has been approved for a trial payment plan and is making the required
Trial payment plan
trial payments.
10 Partial claim started Borrower has been approved for a partial claim.
11 Borrower advises that the loan will be brought current by making a one-time
Promise to pay
payment.
12 Repayment-informal Borrower has been approved for an informal forbearance plan, which is an oral
forbearance plan agreement to bring the loan current within 3 months or less.
15 Preforeclosure acceptance
Borrower has been approved to participate in the preforeclosure sale program.
plan available
26 Refinance started Borrower has been approved for a refinance.
28 Modification started Borrower has been approved for a loan modification.
36 FHA-HAMP* stand-alone Borrower has been approved for a HAMP stand-alone partial claim after
partial claim started successful completion of the FHA-HAMP trial payment plan.
37 FHA-HAMP stand-alone Borrower has been approved for a HAMP stand-alone loan modification after
modification started successful completion of the FHA-HAMP trial payment plan.
39 FHA-HAMP trial payment
Borrower has been approved for a trial payment plan under FHA-HAMP.
plan
41 FHA-HAMP
Borrower has been approved for a HAMP loan modification and partial claim
modification- partial claim
after successful completion of the FHA-HAMP trial payment plan.
started
44 Deed-in-lieu started Borrower has been approved for a deed in lieu, and processing has begun.
3
While we could not corroborate that the 9,278 loans were in loss mitigation, we also do not have evidence to
contradict that classification, and it is reasonable to expect that some portion of loans in forbearance would then
also be in loss mitigation.
4
We did not conduct any further analysis into the difference between the servicer records and SFDMS data.
10
53 Combination partial
Borrower has been approved for a combination loan modification and partial
claim/modification started
claim that is not an FHA-HAMP combination loan modification-partial claim.
(non-FHA-HAMP)
AA Complete financials Lender has received complete financial information from the borrower, and
received and in review review for placement into an appropriate loss mitigation tool has begun.
AH Streamlined financials Lender has received streamlined financial information from the borrower, and
received and in review review for final approval for a streamlined tool has begun.
AQ Borrower has failed to perform under the terms of the loss mitigation tool used by
Option failure
the lender.
* HAMP = Housing Affordable Modification Program
Table 2: Oldest unpaid installment reporting in October 2020
Percentage of loans
All loans reported to SFDMS in Loans that have that have matched
Servicer October 2020 matched OUI* OUI
LoanCare 104,519 104,433 99.92%
Midfirst Bank 89,161 88,513 99.27%
PennyMac 128,515 128,412 99.92%
PNC Bank 10,474 10,442 99.69%
Wells Fargo 230,600 230,367 99.90%
Total 563,269 562,167 99.8%
* OUI = oldest unpaid installment
Table 3: National emergency default reason code reporting in October 2020
Defaulted loans Loans that reported the
in forbearance national emergency Percentage reporting the national
per servicer default reason code in emergency default reason code in
Servicer records SFDMS SFDMS
LoanCare 61,563 59,822 97.20%
Midfirst Bank 54,782 54,582 99.60%
PennyMac 71,371 71,141 99.70%
PNC Bank 3,591 2,125 59.20%
Wells Fargo 102,902 99,812 97.00%
Total 294,209 287,482 97.7%
Table 4: Loans in formal forbearance potentially miscoded as special forbearance in October
2020
Defaulted loans in Loans that reported Percentage potentially
forbearance per national emergency miscoded defaulted loans
servicer records default reason and special based on prior two columns
Servicer (A) forbearance in SFDMS (B) (B/A x 100)
LoanCare 61,563 3 0.01%
Midfirst Bank 54,782 9 0.02%
PennyMac 71,371 25 0.04%
PNC Bank 3,591 8 0.22%
Wells Fargo 102,902 5 0.01%
Total 294,209 50 0.02%
11
Appendix C
Criteria
HUD Mortgagee Letter 2020-13
The purpose of this mortgagee letter (ML) is to inform mortgagees [servicers] of an extension to
the foreclosure and eviction moratoriums originally issued in Mortgagee Letter 2020-04 for
borrowers with FHA-insured single-family mortgages covered under the Coronavirus Relief, and
Economic Security (CARES) Act for an additional period through June 30, 2020, and to
announce new Single Family Default Monitoring System (SFDMS) reporting requirements.
Servicing - SFDMS Reporting Requirements for All Endorsed Mortgages Utilizing the
Forbearance for Borrowers Affected by the COVID-19 National Emergency
Mortgagees must report the default/delinquency reason codes that apply to the borrower at the
end of each reporting cycle and must update the code as the borrower’s circumstances change.
Default Status Code Reporting
For all endorsed mortgages utilizing the forbearance for borrowers affected by the COVID-19
national emergency, mortgagees must begin reporting immediately Status Code 06 – Formal
Forbearance.
If mortgagees were previously reporting any other code for the forbearance for borrowers
affected by the COVID-19 national emergency, mortgagees should stop reporting that status
code immediately and begin reporting Status Code 06 – Formal Forbearance. Mortgagees must
maintain the same default status date as the date the borrower was approved for the forbearance
if changing status code.
If the mortgage is newly defaulted (no open default episode in SFDMS), mortgagees must report
Status Code 42 – Delinquent and then Status Code 06 – Formal Forbearance.
Default Reason Code Reporting
To assist in identifying delinquencies that are a result of a national emergency declaration in
which the physical property is not impacted, FHA has implemented a new delinquency and
default reason (DDR) code that is available for use by mortgagees. The new DDR Code 055 –
Related to National Emergency Declaration must be used to report that the delinquency is a
result of impacts of the COVID-19 pandemic. This new code may be used beginning on May 1,
2020, for the April 2020 reporting cycle.
In the interim, all mortgagees that are unable to report DDR Code 055 – Related to National
Emergency Declaration for the April 2020 cycle must report DDR Code 010 – Neighborhood
Problem until they can begin reporting DDR code 055.
Mortgagees must fully implement reporting of DDR Code 055 – Related to National Emergency
Declaration no later than the July 2020 reporting cycle. That data is due to HUD no later than
August 7, 2020, which is the fifth business day of August 2020.
12
HUD Handbook 4000.1, FHA Single Family Housing Policy Handbook
III. SERVICING AND LOSS MITIGATION
A. Title II Insured Housing Programs Forward Mortgages
2. Default Servicing, h. Early Default Intervention
ii) SFDMS Default Reporting
(A) Definition
Single Family Default Monitoring System (SFDMS) is HUD’s system for tracking
Mortgagee [servicer] data on Delinquent Mortgages until a delinquency is resolved through
reinstatement or termination.
(B) Standard
The Mortgagee must report in SFDMS the Delinquency/Default Status Codes that accurately
reflect the stage of delinquency or Mortgagee action.
(1) Types of Mortgages to Report
Each month, the Mortgagee must report Delinquent servicing activities for all Mortgages that
are 30, 60, and 90 Days or more Delinquent as of the last Day of the month.
The Mortgagee must report the statuses of three classes of Mortgages each month:
• New Delinquencies: The Mortgagee must report Delinquent accounts when one full
installment is due and unpaid (30 Days Delinquent - Status Code 42) and must continue
reporting the applicable Status Code until the delinquency is resolved.
• Open Delinquencies: The Mortgagee must continue to report a Status Code 42 until a
servicing action has been initiated/approved and/or completed which would warrant a Status
Code change.
• Delinquencies Resolved During the Cycle Month: The Mortgagee must report the
appropriate Status Code to reflect that the delinquency has been addressed.
(2) Time Frame for Reporting
For every case for which reporting is required, the Mortgagee must submit delinquency data
documenting the status as of the end of the month. The Mortgagee must submit this data by
the fifth business day of the following month. Mortgagees may submit additional
delinquency data throughout the month.
(a) Reporting Accuracy
A Mortgagee must submit an accurate SFDMS report. All the information is important;
some is so critical that if that data is inaccurate or missing, the report on that Mortgage or
even the entire monthly report is automatically rejected by SFDMS.
13
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