April 18, 2022

HUD: FHA Adds 40-Year Mortage Modification with Partial Claim to Home Retention Options for Struggling Borrowers

Addition to loss mitigation home retention options allows servicers to assist additional FHA forward mortgage borrowers who are behind on mortgage payments due to COVID-19.

The Federal Housing Administration (FHA) announced on Monday that it is adding a new, 40-year mortgage modification option for mortgage servicers to use in conjunction with its partial claim option to assist additional borrowers who are behind on their mortgage payments for FHA Title II forward mortgages. This new loss mitigation home retention option is designed to help those borrowers who cannot achieve a minimum targeted 25 percent reduction in the Principal and Interest portion of their mortgage payment through FHA’s existing 30-year mortgage modification with a partial claim.

“Over the last year we have made substantive changes to our COVID-19 recovery options that are showing strong results in helping homeowners with FHA-insured mortgages recover from the devastating financial effects of the pandemic. Adding a 40-year modification with partial claim to our toolkit for servicers today reaffirms our long-term commitment to continue helping as many struggling homeowners as we can to keep their homes,” said Principal Deputy Assistant Secretary for Housing and the Federal Housing Administration Lopa P. Kolluri.

The 40-year modification with partial claim is now included as a component of FHA’s COVID-19 Recovery Modification and is consistent with 40-year modification options provided by other mortgage industry participants. The 40-year modification with partial claim is to be used by mortgage servicers for borrowers where FHA’s other Recovery options are unable to achieve the minimum targeted 25 percent reduction.

Mortgage servicers may begin implementing the new 40-year modification with partial claim option immediately but must begin offering this solution to eligible borrowers with FHA-insured Title II forward mortgages, except those funded through Mortgage Revenue Bonds under certain circumstances, within 90 calendar days.

40-year Mortgage Modification Proposed Rule

On April 1, 2022, FHA published a proposed rule in the Federal Register to solicit public comments on a proposal to allow servicers to provide a standalone 40-year loan modification option. The public comment period closes on May 31, 2022.  When finalized, the rule will give FHA the ability to add a permanent 40 year term to its loss mitigation options.

FHA Single Family Loss Mitigation Home Retention Fact Sheet

Data as of February 28, 2022

FHA COVID-19 Recovery Loss Mitigation Home Retention Options

FHA’s COVID-19 Recovery options for use by mortgage servicers include the COVID-19 Advance Loan Modification (ALM). Available to owner-occupant and non-occupant borrowers, the COVID-19 ALM is a permanent change in one or more terms of a borrower’s mortgage that achieves a minimum 25 percent reduction to the borrower’s monthly Principal and Interest (P&I) payment and does not require borrower contact. Mortgage servicers will proactively mail the modified mortgage documents to borrowers who can achieve the required payment reduction. If the borrower chooses to accept the COVID-19 ALM they only need to sign and return the mortgage modification documents sent to them by their mortgage servicer.

FHA’s current COVID-19 Loss Mitigation Home Retention “waterfall” of options for servicers to use with eligible owner-occupant borrowers with FHA-insured Title II forward mortgages contains the following:

Additional information about these recovery options and FHA’s COVID-19 Recovery home retention for non-occupant borrowers is available on FHA’s COVID-19 Loss Mitigation Options for FHA Homeowners web page.

This post was originally published here.