Altisource Servicer Solutions

Page 2 Executive Summary As the popularity of Federal Housing Administration (FHA) insured home loan lending expand s , servicers are looking to re fine their strategy for managing foreclosed homes under FHA's Claims Without Conveyance of Title (CWCOT) program . FHA developed the CWCOT program to help build stronger communities by preserving the condition and accelerating the sale of its real estate owned (REO) properties . To accomplish FHA's objectives, the CWCOT program provides the servicer with two primary claim channels : sale at foreclosure auction (or shortly thereafter as a so - called "s econd c hance " auction) and conveyance to the Department of Housing and Urban Development ( HUD ) . This pa per lays out a road map for an effective and efficient CWCOT program strategy — one that incorporates elements of decision theory and risk modeling to simplify and streamline processes while decreas ing loss severity for servicers . History of the CWCOT Program As HUD 's primary insurer for single - family home loans , the FHA faced challenges with limiting losses and quickly returning home s to communities in cases of mortgage default . The FHA created the CWCOT program in 1987 to reduce HUD - owned inventory by providing an alternat iv e disposition channel. Prior to the implementation of the CWCOT program, servicers had two options after foreclosure : • C onvey the property to HUD after meeting asset condition requirements or • F orego the mortgage insurance claim payment and keep the property (i.e., not convey the property to HUD) The CWCOT program created a third option permitting third - party sales with the reserve price established at the full debt outstanding on the loan in order to seek deficiency judgment against borrowers as an alternative to conveyance . In theory , this option should have further decrease d HUD - owned inventory by allowing servicers to sell properties in as is condition and thus reduce timelines and repair costs. I n reality , the addition of third - party sales resulted in only minor improvements to the program given that the full debt sale price was often higher than the market value of the home and that the process to seek deficiency judg ment against borrowers created additional layers of complexity and cost for lenders . F ollowing the 2008 housing crisis , HUD adjusted its guidelines to give the CWCOT program more flexibility . The revised program allowed servicers to accept offers for less than the full debt owed on the loan by utilizing a HUD - approved discounted value . This value - based pricing strategy allow ed sales to occur at or below a property's market value as opposed to requiring the full debt as the minimum acceptable sale price. Th e current program reflects this pricing policy change and has reduced the number of properties conveyed to HUD .

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