On April 1, 2020, the U.S. Department of Housing and Urban Development (HUD) issued a Mortgagee Letter informing mortgagees of special Loss Mitigation Home Retention Options available to single family borrowers, as well as an extension period for Home Equity Conversion Mortgages (HECM), affected by the COVID-19 Presidentially Declared National Emergency in accordance with the CARES Act. Below is a summary of the key provisions.
- The policy changes below will be incorporated into Handbook 4000.1, Section III.A.3.d.
- The sections Forbearance for Borrowers Affected by the COVID-19 National Emergency and Extension Period for Home Equity Conversion Mortgages Affected by the COVID-19 National Emergency and the exclusion of the COVID-19 National Emergency from FHA’s PDMDA guidance in Handbook 4000.1 are effective immediately, while mortgagees must implement all other procedures set forth in the Mortgagee Letter by April 30, 2020, although mortgagees may begin using the new procedures immediately.
- The guidance applies to all FHA Title II Single-Family mortgage programs.
Loss Mitigation for Borrowers Affected by the COVID-19 National Emergency
- A mortgagee cannot deny COVID-19 National Emergency Home Retention Options to borrowers experiencing adverse impacts on their ability to make mortgage payments on time because of the COVID-19 National Emergency (National Emergency) that satisfy the loss mitigation criteria set forth in Section III.A.3.d.
Forbearance for Borrowers Affected by the COVID-19 National Emergency
- A mortgagee must offer a borrower a forbearance allowing for one or more periods of reduced or suspended payments, without specific terms of repayment, if a borrower is experiencing financial hardship negatively impacting their ability to make on-time mortgage payments because of the National Emergency.
- Mortgagees may use any available methods for communicating with borrowers regarding a forbearance to meet these requirements, including email, text, fax, teleconference, website or sending out general communications advising borrowers that forbearance is granted, provided borrowers email a request or call their servicer.
- The initial forbearance period may last up to six months, and the borrower may request the mortgagee approve an additional forbearance period of up to six months.
- At the borrower’s request, the term of either the initial or the extended forbearance period may be shortened.
- If the borrower is on a forbearance plan, the mortgagee must waive all late charges, fees, and penalties, if any.
COVID-19 National Emergency Standalone Partial Claim
- If an owner-occupant borrower receives a Forbearance for Borrowers Affected by the COVID-19 National Emergency, no later than the end of the forbearance period(s) the mortgagee must evaluate the borrower for the COVID-19 National Emergency Standalone Partial Claim (Standalone Partial Claim).
- The mortgagee must ensure the following eligibility requirements are met:
- The mortgage was current or fewer than 30 days delinquent as of March 1, 2020.
- The borrower indicates they have the ability to resume making on-time mortgage payments.
- The property is owner-occupied.
- Under the terms of the Standalone Partial Claim, the mortgagee must ensure that:
- The borrower’s accumulated late fees are waived;
- Only arrearages, consisting of principal, interest, taxes, and insurance, are included in the Standalone Partial Claim amount;
- The Standalone Partial Claim amount does not exceed the maximum statutory value of all partial claims for an FHA-insured mortgage, as listed in Section III.A.2.k.v.(D)(2)(a) (Statutory Maximum for Partial Claims); and
- The borrower receives only one Standalone Partial Claim.
- The mortgagee must submit all documentation for partial claims required under Section III.A.2.k.v(J)(6) (Delivery of Partial Claim Documents).
- The mortgagee is automatically granted a 90-day extension to the six-month deadline for delivering the required documentation related to the recorded mortgage.
- If a mortgagee experiences additional delays out of their control impacting the delivery of the partial claim documents related to the recorded mortgage within the six-month deadline plus the automatic 90-day extension, the mortgagee may file requests for an additional extension in accordance with Section III.A.2.k.v(J)(7) (Extensions of Time for Delivery of Partial Claim Documents).
Single Family Default Monitoring Systems (SFDMS) Reporting Requirements for Borrowers Affected by the COVID-19 National Emergency in Loss Mitigation
- Servicers must report the Default/Delinquency Reason Codes that apply to a borrower at the end of each reporting cycle and must update the code as the borrower’s circumstances change.
Required Financial Evaluation for Other Loss Mitigation Home Retention Options
- A mortgagee must evaluate any borrower not brought current through a Standalone Partial Claim Option for other Loss Mitigation Home Retention Options (§ III.A.2.k) and Home Disposition Options (§ III.A.2.l).
- If a borrower is delinquent because of a forbearance received following a COVID-19 National Emergency Declaration, the borrower is deemed to satisfy the eligibility requirements for FHA Loss Mitigation Home Retention and Home Disposition Options.
Terms of the Mortgage Are Unaffected
- Nothing in the Mortgagee Letter confers to a borrower any right to any loss mitigation or other action by HUD or a mortgagee.
- A mortgagee may still enforce its private contractual rights under the terms of the mortgage, and the Mortgagee Letter does not affect any private contractual rights and obligations.
- If a mortgagee chooses to enforce its contractual rights after the expiration of a forbearance due to the National Emergency, the standard time frames to initiate foreclosure and reasonable diligence in prosecuting foreclosure following expiration of a foreclosure moratorium will apply.
Reporting to Consumer Reporting Agencies of Borrowers Impacted by COVID-19 National Emergency
- 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 delinquent for purposes of credit reporting.
- While the FHA requires servicers to comply with the credit reporting requirements of the Fair Credit Reporting Act (FCRA), the FHA encourages servicers to consider the impacts of the National Emergency on borrowers’ financial situations and any flexibilities a servicer may have under the FCRA when taking any negative credit reporting actions.
Exclusion of COVID-19 from FHA’s Presidentially Declared Major Disaster Areas (PDMDA) (III.A.3.c) Guidance in Handbook 4000.1
- For borrowers impacted by the National Emergency whose mortgaged property is located in a COVID-19 PDMDA, the policy in the Mortgagee Letter applies in lieu of FHA’s PDMDA guidance listed in Presidentially Declared Major Disaster Areas (§ III.A.3.c), for the purposes of this National Emergency only.
- If mortgagees have begun using FHA’s PDMDA Loss Mitigation Options (§ III.A.3.c), they must convert to the COVID-19 National Emergency Loss Mitigation Options listed in the Mortgagee Letter.
Extension Period for Home Equity Conversion Mortgages Affected by the COVID-19 National Emergency
- Pursuant to the National Emergency, the mortgagee must delay submitting a request to call a loan due and payable upon request of a borrower.
- The initial extension period may last up to six months, and if needed, HUD may approve an additional period of up to six months.
- At the borrower’s request, the term of either the initial or the extended extension period may be shortened.
- A mortgagee 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 mortgagee 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, HUD may approve an additional period of up to six months.
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