FHA moves closer to offering 40-year loan modification

the Federal Housing Administration (FHA) is working to expand the COVID-19 loss mitigation program to include the option of a 40-year loan modification with a partial claim, a recognition that some borrowers coming out of forbearance are still facing financial challenges.

Julienne Joseph, Assistant Assistant Secretary in the Office of Single Family Housing for the FHA at the US Department of Housing and Urban Development (HUD), said the government agency is “almost there” and “warming up” by offering the option to borrowers.

“As far as the 40-year partial claim goes, I would say probably within the next 60 days we will know more about what we can do about it,” Joseph said Wednesday at the 2022 conference and expo on Orlando MBA maintenance solutions. , Florida.

She added: ‘Of course we believe the clock is ticking, particularly as the national emergency has been extended. On February 18, President Biden extended the declaration of national emergency for the COVID-19 pandemic beyond March 1.

HUD did not immediately return a request for additional information about its plans.

In September, the FHA released a draft mortgage letter proposing a 40-year loan modification combined with a partial claim. The goal is to help borrowers achieve the targeted 25% reduction in the monthly principal and interest portion of their mortgage payments.

The FHA proposal only came after ginnie mae announced in June that it was preparing to introduce a new 40-year mortgage term for its issuers. Lenders and managers had previously expressed concern over the public company’s inability to buy long-term loans, a mortgage lobbyist told Housingwire.

“We have begun work to make this security product available because an extended term of up to 40 years can be a powerful tool in reducing monthly payment obligations in an effort to retain the home,” said Michael Drayne, vice-president. interim executive chairman of Ginnie Mae, in a statement.

Industry stakeholders have asked for more time to adjust to the change. In an October letter, the Housing Policy Council (HPC) and Mortgage Bankers Association (MBA) asked the FHA to delay implementing the new option until the first quarter of 2022. They also asked the government agency for a 90-day window to begin offering the loan modification.

“Demanding repairers implement a wide range of policy changes over the past few months has been difficult and we expect this to continue through the first quarter of 2022,” they said in a letter to the company. FHA.

The FHA is investigating the right place to offer the 40-year loan modification with partial claim in the loss mitigation “waterfall,” which provides levels of assistance to help borrowers pay their mortgage.

The new loan modification will likely be offered toward the end of this process because the FHA doesn’t want it to be too “intrusive,” according to Joseph. The option, which can help borrowers during the pandemic, could be part of the FHA’s standard amendment protocols.

Other government entities, such as Fannie Mae and Freddie Mac, already offer a loan modification term of 40 years. According to HUD’s website, its loan modification option extends the term of the mortgage to 360 months at a fixed interest rate.

The partial claim, however, allows arrears to be placed in a zero-interest subordinate lien against the property to be paid after the final mortgage payment, if the loan is refinanced or the property is sold, whichever comes first.

The 40-year loan modification with partial debt combines the two options. “It is for those who obviously have the most difficulty. They may have gone back to work, but their income is lower than before the pandemic,” a mortgage lobbyist who participated in discussions with the FHA told HousingWire.

According to the latest MBA data, 650,000 owners were in forbearance plans as of January 31. Renegotiated loans in Ginnie Mae’s portfolio fell three basis points from December to January, to 1.60% of repairers’ portfolio volume.

Over the past 19 months, MBA data revealed that 29.1% of total forbearance exits resulted in a loan deferral or partial claim. About 19% of these borrowers continued to pay during the forbearance period. However, 17% were borrowers who had not made their monthly payments and did not have a loss mitigation plan.

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