Misinformation is spreading on TikTok about the Federal Housing Administration‘s (FHA) recent increase to the maximum mortgage modification term, causing confusion for homebuyers.
The FHA announced a final rule last month that allows mortgagees to increase the maximum FHA-insured mortgage loan modification term from 360 months to 480 months following a default. That change is slated to go into effect on May 8.
While the FHA’s recent decision only applies to existing mortgages that defaulted, some inaccurate TikTok content claims that the FHA approved a 40-year mortgage loan program for first-time home buyers.
“The difference now is, they [the FHA] are making their loan term to 40 years, and that increases your buying power as a purchaser,” one user, who claims to be a lawyer, said in a recent video. “You can go out and get a bigger house now because you have higher borrower power at 3% down because your loan term has increased to 40 years.”
The new FHA regulation is a loss mitigation option geared toward helping homeowners retain their homes after defaulting by allowing mortgagees to further reduce the monthly payment for borrowers.
The 40-year loan modification can assist borrowers in avoiding foreclosure by spreading the outstanding mortgage balance out over a longer period. This makes the monthly payments more affordable, the FHA said in March.
The Department of Housing and Urban Development (HUD) did not respond to HousingWire’s request for comment on the spread of inaccurate information on the FHA’s 40-year loan modification decision prior to publishing.
Another video from a TikTok user who claims to be a financial advisor states that HUD introduced a 40-year FHA mortgage.
“Right now, a 30-year FHA loan for $500,000 at 6.7% interest would cost $3,500 a month. What if we allowed a 40 year option that would only be $3280 a month saving them $220?” the TikTok user said in a video where he plays a role of a HUD official.
But while there is content on TikTok that misrepresents the FHA’s loan modification announcement, some users have uploaded videos that warn about inaccurate information.
“It’s not for new loans (…). The 40-year loan is going to be for people who already had an FHA loan and demonstrate they have need [the] need to modify that loan or make changes to it so they can keep their home and not foreclose,” a user, who claims to be loan originator, said.
“This is a perfect example of why you have to be careful of clickbait content,” the user noted.
The FHA’s final rule also aligns the FHA modification option requirements available for Fannie Mae– and Freddie Mac-backed mortgages, both of which provide a 40-year loan modification option.
Borrowers who choose a 40-year loan modification would see additional interest payments over the course of the extended term, but HUD noted that the opportunity for borrowers to retain their homes with a more sustainable payment plan outweighs the drawbacks.
“While rising interest rates may keep the 40-year loan modification from providing significant payment reduction, HUD believes that rising interest rates make the 40-year loan modification more critical in circumstances where the 30-year loan modification does not sufficiently decrease the monthly payment to an amount that the borrower could afford to retain their home,” the HUD said in its final ruling in March.
