FHA Proposes 40-Year Loan Modification Rule

The Federal Housing Administration on Friday published a proposed rule that would increase the maximum modification loan term limit from 360 months (30 years) to 480 months (40 years).

When finalized, the proposed rule would allow mortgagees to provide a 40-year loan modification option to borrowers who may not otherwise qualify for payment reduction or other loss mitigation options. The proposal also offers an option to borrowers that are facing or experiencing a financial hardship, including those that were financially impacted by the COVID-19 pandemic.

“Extending the loan term limit to 480 months can help borrowers avoid foreclosure by spreading the outstanding mortgage balance over a longer period and making their monthly mortgage payments more affordable,” FHA said. 

This change would also align FHA with modifications available to borrowers with mortgages backed by Fannie Mae, Freddie Mac and the Department of Agriculture USDA, which all currently provide a 40-year loan modification option to borrowers.

The proposed rule is subject to a 60-day comment period through May 30.