Legal Alert

HUD Provides Guidance on Making FHA Loans to Borrowers With Forbearances

by the Mortgage Banking Group
September 11, 2020

In Mortgagee Letter 2020-30 dated September 10, 2020, the U.S. Department of Housing and Urban Development (HUD) provides guidance on the underwriting of applicants for FHA insured mortgage loans who were granted a previous mortgage forbearance on the subject property or another residence due to COVID-19 or a presidentially declared major disaster. The guidance applies to FHA Title II single-family forward mortgage loan programs. FHA lenders may implement the guidance immediately and must implement the guidance for loans with case numbers assigned on or after November 9, 2020.

Generally, a borrower who was granted a mortgage forbearance is eligible for a new FHA insured mortgage loan provided

  • for a borrower granted a forbearance who continued to make regularly scheduled payments, the forbearance plan is terminated; or
  • for cash-out refinance loans, the borrower has completed the forbearance plan and made at least 12 consecutive monthly payments post forbearance; or
  • for purchase money loans and no cash-out refinance loans, the borrower has completed the forbearance plan and made at least three consecutive monthly payments post forbearance; or
  • for credit qualifying streamline refinance loans, in addition to the conditions noted below, the borrower either is still in forbearance or has completed the forbearance plan and made less than three consecutive monthly payments post forbearance; and
  • for all streamline refinance transactions, the borrower has made at least six payments on the FHA-insured mortgage being refinanced (when the FHA insured mortgage has been modified after forbearance, the borrower must have made at least six payments under the modification).

The guidance addresses the underwriting of loans using the Technology Open To Approved Lenders (TOTAL) mortgage scorecard and manual underwriting. The guidance also provides details for the situations noted above, including the general standards that apply, payment history requirements, and documentation requirements.

Copyright © 2020 by Ballard Spahr LLP.
(No claim to original U.S. government material.)

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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.

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