FHA Announces Additional Loss Mitigation Options Based on CARES Act
In Mortgagee Letter 2020-06, dated April 1, 2020, the U.S. Department of Housing and Urban Development (HUD) announced further loss mitigation options for FHA loans based on the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). FHA also announced an extension period for Home Equity Conversion Mortgage (i.e., reverse) loans (HECMs). The new guidance applies to all FHA Title II single family mortgage programs. HUD welcomes feedback on the guidance for a period of 30 days from April 1, 2020.
The specific COVID-19 forbearance guidance and the specific COVID-19 HECM extension period guidance set forth in the Mortgagee Letter are effective immediately. All other parts of the guidance must be implemented no later than April 30, 2020, although servicers may begin following such guidance immediately. Servicers may approve the initial COVID-19 forbearance for forward mortgage loans and the HEMC extension period no later than October 30, 2020.
The guidance for the COVID-19 forbearance will be incorporated into a new section of HUD Handbook 4000.1 entitled “Presidentially-Declared COVID-19 National Emergency.” For borrowers affected by COVID-19, this guidance should be followed, and not the existing guidance in the Handbook for Presidentially-Declared Major Disaster Areas (PDMDA). For servicers who are using the loss mitigation options under the PDMDA guidance, they must convert to the loss mitigation options in the new guidance for COVID-19.
Forbearance Relief. The guidance includes a very direct statement: Servicers “must not deny COVID-19 National Emergency Home Retention Options to [b]orrowers that experience an adverse impact on their ability to make on-time [m]ortgage [p]ayments due to the COVID-19 National Emergency and satisfy the loss mitigation criteria set forth in [the guidance].” The guidance provides that:
- If a borrower is experiencing a financial hardship negatively impacting their ability to make on-time mortgage payments due to the COVID-19 National Emergency and makes a request for a forbearance, the servicer must offer the borrower a forbearance, which allows for one or more periods of reduced or suspended payments without specific terms of repayment.
- The initial forbearance period may be up to six months and, if needed, an additional forbearance period of up to six months may be requested by the borrower, and must be approved by the servicer. The term of either the initial or the extended forbearance may be shortened at the borrower’s request.
- The servicer must waive all late charges, fees, and penalties, if any, as long as the borrower is on a forbearance plan.
With regard to communications with borrowers, the guidance provides that the servicer may utilize any available methods for communicating with a borrower regarding a forbearance to meet these requirements. Examples of acceptable methods of communication regarding a forbearance include, but are not limited to, emails, texts, fax, teleconferencing, websites, or sending out a general communication advising borrowers that forbearance is granted, provided the borrower emails a request or calls their servicer.
Partial Claim Criteria. For a borrower who owns and occupies their home that secures the FHA loan and receives a forbearance based on the COVID-19 National Emergency, the servicer must evaluate the borrower for a COVID-19 National Emergency Standalone Partial Claim no later than the end of the forbearance period(s).
The eligibility requirements for a COVID-19 National Emergency Standalone Partial Claim are:
- The loan was current or less than 30 days past due as of March 1, 2020;
- The borrower indicates they have the ability to resume making on-time mortgage payments; and
- The property is owner-occupied.
Additionally, the servicer must ensure that:
- The borrower’s accumulated late fees are waived;
- The COVID-19 National Emergency Standalone Partial Claim amount includes only arrearages, which consists of principal, interest, taxes, and insurance;
- The COVID-19 National Emergency Standalone Partial Claim does not exceed the maximum statutory value of all partial claims for an FHA-insured mortgage (as listed in Handbook 4000.1 section Statutory Maximum for Partial Claims, III.A.2.k.v(D)(2)(a)); and
- The borrower receives only one COVID-19 National Emergency Standalone Partial Claim.
Other Loss Mitigation Options. For a borrower who is not brought current through a COVID-19 National Emergency Standalone Partial Claim, the servicer must evaluate the borrower for other loss mitigation home retention options (Handbook 4000.1 section III.A.2.k) and home disposition options (Handbook 4000.1 section III.A.2.l). Pursuant to the guidance, borrowers who are delinquent due to a forbearance received following a COVID-19 National Emergency Declaration are deemed to satisfy the eligibility requirements for FHA loss mitigation home retention and home disposition options.
Credit Reporting. The guidance provides that a borrower who is granted a Forbearance for Borrowers Affected by the COVID-19 National Emergency and is otherwise performing as agreed is not considered to be delinquent for purposes of credit reporting.
The guidance also notes that FHA requires servicers to comply with the credit reporting requirements of the Fair Credit Reporting Act (FCRA). However, FHA encourages servicers to consider the impacts of the COVID-19 National Emergency on the financial situations of borrowers and any flexibilities a servicer may have under the FCRA when taking any negative credit reporting actions.
Extension Period for HECMs. For HECMs, the guidance provides that, pursuant to the COVID-19 National Emergency, upon request of the borrower the servicer must delay submitting a request to call a loan due and payable. Consistent with the forbearance periods provided for in the CARES Act, the initial extension period may be up to six months and, if needed, an additional period of up to six months may be approved by HUD. The term of either the initial or the additional extension period may be shortened at the borrower’s request. The servicer must waive all late charges, fees, and penalties, if any, as long as the borrower is in an extension period.For loans that have become automatically due and payable, entered into a deferral period, or became due and payable with HUD approval, the servicer may also take an automatic extension for any deadline relating to foreclosure and claim submission for a period of up to six months. If needed, an additional period of up to six months may be approved by HUD.
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