The latest economic and policy trends facing mortgage servicers

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CoronavirusMortgage

FHA rolls out new mortgage relief options amid coronavirus outbreak

Implements CARES Act provisions for forbearance

With a record number of people suddenly unemployed due to the impact of the coronavirus on the nation, the government is taking steps to allow some borrowers to pause their mortgage payments for six months or longer.

The Department of Housing and Urban Development announced Thursday that the Federal Housing Administration is rolling out a “tailored set of mortgage payment relief options” for FHA mortgage borrowers who are being affected by the coronavirus.

One of those payment relief options gives borrowers the ability to defer their mortgage payments for at least six months and as many as 12 months.

“Effective immediately for borrowers with a financial hardship that makes them unable to pay their mortgage due to the COVID-19 National Emergency, mortgage servicers must extend deferred or reduced mortgage payment options – called forbearance – for up to six months, and must provide an additional six months of forbearance if requested by the borrower,” HUD and the FHA said Thursday.

The payment relief options are part of the Coronavirus Aid, Relief, and Economic Security Act, which President Donald Trump signed into law on March 27, 2020. The CARES Act dictates that borrowers with federally backed mortgages can receive as many as 12 months of forbearance.

According to the FHA, the forbearance option applies to any borrower who has an FHA loan and is experiencing a coronavirus-related hardship.

The issue of forbearance is that typically when the forbearance period ends, the borrower is required to either pay the full amount of missed payments in one lump sum or work with their mortgage servicer on some kind of payment plan.

In an effort to avoid any issues with the end of forbearance, the FHA is also rolling out a new program that will allow borrowers to hold off on paying the full amount of their forbearance period until their mortgage is paid off.

“In addition to special COVID-19 forbearance, FHA also implemented today the COVID-19 National Emergency Partial Claim, an option to be used by servicers when the COVID-19 forbearance period ends,” the FHA said.

“This partial claim will help eligible homeowners who have been granted special COVID-19 National Emergency forbearance to reinstate their loans by authorizing servicers to advance funds on behalf of homeowners,” the FHA said.

The FHA said that through this option, borrowers are given an interest-free subordinate mortgage that they do not have to pay off until their first mortgage is paid off.

Beyond those options, the FHA is also making changes to its reverse mortgage rules to allow HECM borrowers to delay making their payments as well.

Specifically, the FHA instructed mortgage servicers to “delay submitting due and payable requests for home equity conversion mortgages by six months, with an additional six-month delay available with HUD approval.”

HUD is also instructing mortgage servicers to “extend any flexibility they may have under the Fair Credit Reporting Act relative to negative credit reporting actions.”

In a statement, HUD Secretary Ben Carson said that immediate help is now available to those who need it.

“The last thing any of us wants is for Americans to lose their homes unnecessarily while we continue to fight this invisible enemy,” Carson said. “The FHA will continue to work with stakeholders to ensure that the loss mitigation options that are offered for both forward and reverse borrowers are appropriately tailored for the present situation.”

HUD and the FHA noted that these options are reserved for those who are struggling from a coronavirus-related situation and encouraged those who can continue paying their mortgage to do so.

“However, those who are experiencing financial hardship as a result of the COVID-19 National Emergency should immediately contact their mortgage servicer – the entity to which they make their monthly mortgage payments – to discuss forbearance or other options that may be available to them,” HUD and the FHA said. “Borrowers who are not experiencing an income reduction due to COVID-19 are asked to avoid contacting their mortgage servicer about these options, as these questions will divert resources from serving those truly in need.”

According to HUD and the FHA, these mortgage relief options are available now.

“For American families impacted by the COVID-19 virus and unable to pay their FHA-insured mortgage, imminently losing their homes is now one less fear they should have,” Assistant Secretary for Housing and Federal Housing Commissioner Brian Montgomery said. “Today’s actions will ease the immediate pressures faced by many Americans who, through no fault of their own, are struggling with financial uncertainty.”

For more on the relief options, click here and here.

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