Mortgage servicers have gotten a rare reprieve from the Federal Housing Administration.

The Department of Housing and Urban Development on Friday withdrew part of a proposal that would have required mortgage servicers to file FHA insurance claims within a specific time frame or face termination of FHA insurance.

Lenders had argued that HUD's July 6 proposal would have had a chilling effect on the origination of FHA-insured loans. Lenders also were concerned that the proposal would chip away at one of the FHA's greatest assets - the reliability of FHA's insurance guarantee -- and spook investors in Ginnie Mae securities.

HUD said in a filing in the Federal Register that the withdrawal covers only the provision that would have established "the maximum time period within which an FHA-approved mortgagee must file a claim with FHA for insurance benefits."

HUD's overall proposal would revise policies concerning curtailment of interest, and the disallowance of certain expenses incurred by a servicer, for failing to initiate foreclosure in a timely manner.

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