FHA Escrow Proposal Worries Lenders.(Federal Housing Administration)

Orlando, FL -- When the nation's top mortgage servicing executives gather here starting Feb. 20, many will be eager to talk with Federal Housing Administration officials about some proposals that could pose big challenges for the management of FHA loans.

Of particular concern is a plan that would require FHA servicers to manage borrowers' condominium and homeowners association dues via escrow accounts.

J.K. Huey, senior vice president at IndyMac Bank and chairwoman of the MBA's loan administration steering committee, told MSN that escrowing for homeowners associations and condo fees would be unworkable.

She noted that there are some 250,000 registered condo and homeowners associations, and an unknown additional number that are not registered. Finding and maintaining a payee database for such a large network is not feasible, she said, especially since the payee is often the association's treasurer, a position that often changes each year.

In addition, many associations currently do not have the means to accept electronic payments from lenders.

While there are a large number of property tax and insurance payees, an industry of third-party providers has grown up to help servicers manage this burden. No such vendor industry exists today for condo and homeowner dues, and it's not clear if third-party providers of tax and insurance tracking could even provide such a service for condo and homeowners associations.

In addition, servicers will face additional costs related to making advances for condo and association dues.