If you have a Federal Housing Administration [1] (FHA) insured mortgage and you are falling behind on payments in this post-pandemic era, there are still options to avoid default.
On Jan. 30, the FHA announced that it is “expanding and enhancing” it's set of loss mitigation options developed during the pandemic—the enhancements extend FHA’s highly effective COVID-19 loss mitigation options to all eligible borrowers who fall behind on their mortgage payments, regardless of the cause of their delinquency.
For servicers, the update now allows them to use the full 30% of the FHA’s partial claim option, rather than the previous 25% to help maximize the number of borrowers who are eligible to keep their homes.
While servicers can extend these new options immediately, all servicers must implement these changes by April 30 of this year.
“We are committed to ensuring that no FHA borrower experiences foreclosure unnecessarily,” said Assistant Secretary for Housing and Federal Housing Commissioner . “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.”
As highlighted by the Department of Housing and Urban Development [2] (HUD), the specific changes for all FHA-insured Single Family Title II mortgages are:
- 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, 2023, 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.
- Expand the definition of imminent default to include borrowers who qualified for or used U.S. Department of the Treasury’s Homeowner Assistance Funds (HAF). With this change, servicers will be able to 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.
In addition, to simplify loss mitigation options on the servicer side the FHA is temporarily suspending the use of its FHA-Home Affordable Modification (FHA-HAMP) options concurrent with this Mortgagee Letter.
As a whole, the FHA COVID-19 loss mitigation programs have been wildly successful; more than one million borrowers have benefited from these loss prevention programs, allowing them to reduce their payments and avoid foreclosure.
FHA’s loss mitigation work has significantly reduced FHA’s serious delinquency rate—those mortgages where the borrower is 90 or more days past due on their mortgage payments—to 4.79% as of November 30, 2022. In November 2021, FHA’s serious delinquency rate was 7.83%, and at its highest point in November 2020, this rate was 11.90%.