FHA Expands Assistance Options for Struggling Borrowers
The Federal Housing Administration on Monday announced expansion of its loss mitigation options used to help borrowers struggling to make mortgage payments on their FHA-insured mortgages.
The enhancements announced in Mortgagee Letter 2023-02 extend FHA’s COVID-19 loss mitigation options to all eligible borrowers who fall behind on their mortgage payments, regardless of the cause of their delinquency. The updates also enable mortgage servicers to use the full 30 percent of FHA’s partial claim option, rather than the previously permitted 25 percent, to help maximize the number of borrowers able to retain their homes.
The mandatory effective date of the changes is April 30, but FHA said mortgage servicers can begin offering these options to borrowers immediately.
“We are committed to ensuring that no FHA borrower experiences foreclosure unnecessarily,” said Assistant Secretary for Housing and Federal Housing Commissioner Julia Gordon. “FHA’s COVID-19 forbearances and streamlined COVID-19 loss mitigation options have successfully helped millions of struggling borrowers in the last two fiscal years alone. Our action today lets us capitalize on what we have learned through the pandemic to continue helping borrowers avoid foreclosure, regardless of the nature of their hardship.”
According to the Mortgage Bankers Association’s monthly Loan Monitoring Survey, loans in forbearance were at 0.70% as of December 31. MBA estimates 350,000 homeowners are in forbearance plans. The share of Fannie Mae and Freddie Mac loans in forbearance decreased 1 basis point to 0.31%. Ginnie Mae loans in forbearance decreased 1 basis point to 1.45%, and the forbearance share for portfolio loans and private-label securities increased 3 basis points to 1.00%.
A summary of FHA actions follow:
- Extend temporary COVID-19 Recovery loss mitigation options to all eligible borrowers, including non-occupant borrowers, regardless of the nature of their hardship. Servicers must assess all borrowers who are in default or who are at risk of defaulting (imminent default) using FHA’s COVID-19 Recovery loss mitigation “waterfall” of options.
- Update the Partial Claim components of both FHA’s COVID-19 Recovery Standalone Partial Claim and the COVID-19 Recovery Modification by raising the maximum partial claim amount from 25 percent of the mortgage’s unpaid principal balance to the maximum 30 percent allowed by statute. This increase will help more borrowers who cannot return to making their current mortgage payments to reduce their mortgage balance to a level that permits them to achieve a target payment reduction of at least 25 percent despite today’s higher interest rates.
- Extend the availability of FHA’s COVID-19 Recovery loss mitigation options for 18 months past the April 30 mandatory effective date for servicers. The temporary COVID-19 Recovery options were previously scheduled to expire at the official end of the COVID-19 National Emergency. “This change removes the uncertainties associated with the timing of the end of the National Emergency,” FHA said.
- Expand the definition of imminent default to include borrowers who qualified for or used Department of the Treasury’s Homeowner Assistance Funds. With this change, servicers can offer loss mitigation options to borrowers who qualified for or used HAF funds and may no longer technically be delinquent but require further assistance to avoid redefault.
- Provide incentive payments to servicers for the successful completion of COVID-19 Recovery options. Incentive payments are part of FHA’s standard loss mitigation options but are not currently available to servicers for COVID-19 Recovery options. These incentives will help to compensate servicers for the cost and effort of assisting borrowers with COVID-19 Recovery loss mitigation options.
To simplify loss mitigation options for servicers and facilitate the transition to the COVID-19 Recovery loss mitigation options for all eligible borrowers, FHA is temporarily suspending the use of its FHA-Home Affordable Modification options concurrent.