Federal Housing Administration Announces Additional COVID-19 Recovery Options for Homeowners

FEDERAL HOUSING ADMINISTRATION ANNOUNCES ADDITIONAL COVID-19 RECOVERY OPTIONS FOR HOMEOWNERS
Streamlined COVID-19 Recovery 'waterfall' includes broader payment reductions for those most in danger of losing their homes due to COVID-19 financial hardships

WASHINGTON - The Federal Housing Administration (FHA) on July 23, 2021 announced streamlined COVID-19 Recovery options to help homeowners with FHA-insured mortgages who have been financially impacted by the COVID-19 pandemic bring their mortgage current and remain in their homes. The simplified COVID-19 Recovery waterfall allows mortgage servicers to offer eligible homeowners who cannot resume making their mortgage payments a reduction in the principal and interest portion of their monthly payments. The changes announced today will provide those most in danger of losing their homes a path to deep and sustained recovery, including lower income individuals, families of color, and young, first-time homeowners who have disproportionately suffered economic hardships due to the pandemic.

For homeowners who can resume making their existing monthly mortgage payments, FHA has established a revised COVID-19 Recovery Standalone Partial Claim.

Additionally, FHA is reinforcing today that President Biden's American Rescue Plan Homeowner Assistance Funds (HAF), administered to the States by the Department of Treasury, may be used in connection with FHA-insured mortgages or subordinate mortgages as permitted by the jurisdiction's HAF program and other requirements.

'Immediately upon taking office, President Biden prioritized the nation's public health and economic crises by passing the American Rescue Plan,' said Housing and Urban Development Secretary Marcia L. Fudge. 'As Americans get back to work and our economy continues to recover, we are taking targeted steps to make sure homeowners impacted financially by COVID-19 have the support they need to remain in their homes. Housing affordability is at its worst and losing your home now would devastate households. These options for FHA borrowers will ensure equitable relief and recovery to people who need it most.'

New COVID-19 Recovery Waterfall

The new FHA COVID-19 Recovery waterfall streamlines and revises FHA's previous options for struggling homeowners, reduces required documentation, and allows mortgage servicers to provide greater payment reduction for eligible homeowners with FHA-insured Single Family Title II forward mortgages. The simple two-step waterfall options intended for properties that are occupied as the homeowner's primary residence are:

1. COVID-19 Recovery Standalone Partial Claim: for homeowners who can resume making their current mortgage payments, the COVID-19 Recovery Standalone Partial Claim allows mortgage payment arrearages to be placed in a zero interest subordinate lien against the property that is repaid when the mortgage terminates, usually when the homeowner refinances or sells the home.
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3. COVID-19 Recovery Modification: for homeowners who cannot resume making their current monthly mortgage payments, the COVID-19 Recovery Modification extends the term of the mortgage to 360 months at a fixed rate and targets reducing the borrower's monthly principal and interest portion of their monthly mortgage payment. The COVID-19 Recovery Modification must include a Partial Claim if the homeowner has Partial Claim funds available.

For properties that are not occupied by the owner, mortgage servicers must offer eligible homeowners FHA's COVID-19 Recovery Non-Occupant Loan Modification, which extends the term of the mortgage to 360 months, or less if requested by the homeowner, at a fixed interest rate.

'This next step in the evolution of FHA's COVID-19 response is a significant and meaningful way to help those homeowners who will be at a critical point in their recovery in the coming months and transitioning out of forbearance to permanent sustainable payments,' said Principal Deputy Assistant Secretary for FHA and the Office of Housing Lopa Kolluri. 'We can help more homeowners who, through no fault of their own, continue to feel the financially impacts of the pandemic and are unable to make their previous mortgage payment amount. Deeper payment reduction is greatly needed for many of these homeowners to stay in their homes.

COVID-19 Recovery Waterfall Implementation and Homeowner Assessments

Servicers may begin offering the new COVID-19 Recovery waterfall as soon as operationally feasible but must begin using the new waterfall for eligible homeowners within 90 days. In addition, servicers must re-review homeowners for the new COVID-19 Recovery options in circumstances where an existing home retention option has not been completed, where the homeowner was previously ineligible for a COVID-19 home retention option, or if the homeowner has re-defaulted after a COVID-19 home retention option.

'FHA and mortgage servicers have a shared goal of helping as many homeowners as possible to return to sustainable homeownership, and the FHA team will continue to monitor closely the performance of our loss mitigation options to ensure that our policies successfully meet the needs of homeowners impacted by COVID-19,' said FHA Deputy Assistant Secretary for Single Family Housing Julienne Joseph.

The COVID-19 Advance Loan Modification

The changes announced today work in tandem with the pre-waterfall FHA COVID-19 Advance Loan Modification (COVID-19 ALM) announced on June 25, 2021. The COVID-19 ALM requires mortgage servicers to review their FHA mortgage servicing portfolio and offer the COVID-19 ALM to eligible homeowners. Homeowners who choose to accept the COVID-19 ALM need to only review and sign and return the mortgage modification documents sent to them by their mortgage servicer.

Important Information for Homeowners

FHA urges those who are behind on their mortgage payments or are having difficulty complying with the terms of their reverse mortgage or Home Equity Conversion Mortgage (HECM), and have not yet contacted their mortgage servicer, to do so immediately. By contacting their servicer, homeowners can obtain a mortgage payment forbearance or a HECM extension. For FHA forward mortgages, FHA also urges homeowners to engage with their mortgage servicer when their mortgage servicer contacts them about the new COVID-19 ALM or how to bring their mortgage current. Homeowners who are seeking more information on the options available to them should also consider contacting a HUD-approved housing counseling agency.

Fact Sheet
Federal Housing Administration Assistance for Homeowners Struggling Financially Due to COVID-19

The Federal Housing Administration (FHA) remains committed to helping homeowners with FHA-insured mortgages who are struggling financially because of the COVID-19 pandemic to return to successful, sustainable homeownership. As of June 30, 2021, 750,628 homeowners with FHA-insured mortgages were 90 or more days delinquent on their mortgage payments. A majority of these homeowners are individuals and families of color.

On June 25, 2021, FHA extended its foreclosure and eviction moratoria for all FHA-insured single family properties, except those that are legally vacant or abandoned, through July 31, 2021. FHA also provided additional relief to homeowners described below.

Immediate Relief for Homeowners

• Servicers of FHA-insured mortgages are required to offer homeowners suffering financially due to COVID-19 a mortgage payment forbearance - a temporary pause or reduction in mortgage payments when the homeowner requests this assistance. FHA extended the timeframe for homeowners to request a mortgage payment forbearance from their mortgage servicer through September 30, 2021.
• FHA also extended the maximum allowable timeframes for COVID-19 Forbearance. Forbearance timeframes are based on the date of the initial forbearance request:

No forbearance period may extend beyond June 30, 2022.

Relief for Senior Homeowners with Home Equity Conversion Mortgages

• To assist senior homeowners with Home Equity Conversion Mortgages (HECMs) who are struggling because of COVID-19:
  • Servicers of FHA-insured HECMs are required to offer homeowners suffering financially due to COVID-19 an extension when the homeowner requests this assistance. FHA extended the timeframe for homeowners to request an extension from their mortgage servicer through September 30, 2021.
  • FHA also extended the maximum allowable timeframes for COVID-19 extensions. These timeframes are based on the date of the initial request:

The following applies to all HECMs.

No Extension period may extend beyond June 30, 2022.

COVID-19 Recovery Options

• As of July 23, 2021, FHA's loss mitigation home retention options for servicers to assist struggling homeowners with FHA-insured Single Family Title II forward mortgages contains the following:
  • The COVID-19 Advance Loan Modification (COVID-19 ALM) for eligible homeowners who can bring their mortgage payments current through a 30-year, fixed-rate mortgage modification that reduces the homeowners monthly P&I portion of the mortgage payment by 25 percent. Servicers proactively offer the COVID-19 ALM to homeowners in their FHA servicing portfolio who are 90 or more days delinquent or at the end of the COVID-19 Forbearance. All loss mitigation options will remain available to eligible borrowers that do not accept the COVID-19 ALM for any reason.
  • A new COVID-19 Recovery Home Retention Waterfall, which replaces the existing options with the following:
    1. The COVID-19 Recovery Standalone Partial Claim for homeowners who can resume making their monthly mortgage payments. The COVID-19 Recovery Standalone Partial Claim allows mortgage payment arrearages to be placed in a zero interest subordinate lien that is repaid when the mortgage terminates, usually when the homeowner refinances or sells the home.
    2. The COVID-19 Recovery Modification for homeowners who cannot resume making their current monthly mortgage payments. The COVID-19 Recovery Modification extends the term of the mortgage to 360 months at a fixed rate and targets reducing the borrower's monthly principal and interest portion of their monthly mortgage payment by 25 percent.
    3. The COVID-19 Recovery Non-Occupant Loan Modification for homeowners who do not occupy the property as their primary residence. This option allows for a fixed-rate mortgage modification of up to 30 years, or less if requested by the borrower.
  • For homeowners who cannot return to sustainable mortgage payments after all home retention options have been exhausted, FHA allows servicers to offer:
    1. The COVID-19 Pre-foreclosure Sale for homeowners who, after all home retention options are exhausted, are unable to keep their home. Also known as a Short Sale, the COVID-19 Pre-foreclosure Sale can be used to sell the property for an amount less than what is owed, without going through the foreclosure process, when lien holders agree to release their liens and forgive the deficiency balance on the real estate.
    2. The COVID-19 Deed-in-Lieu of Foreclosure for homeowners who, are unable to keep their home after all home retention options are exhausted, and who are unable to complete a pre-foreclosure sale. With a Deed-in-Lieu of Foreclosure, the homeowner voluntarily offers the deed to HUD in exchange for a release from all obligations under the mortgage.

Important Notes About FHA COVID-19 Relief and Recovery Options

• FHA does not require borrowers make a lump sum payment at the end of a COVID-19 Forbearance, nor does it require a lump sum payment to be eligible for any loss mitigation home retention options.
• Servicers of FHA-insured mortgages must assess homeowners for a COVID-19 Recovery loss mitigation home retention option at the end a homeowner's COVID-19 Forbearance and may assess homeowners for these options before the end of the homeowner's COVID-19 Forbearance.
• Servicers must re-review homeowners for the new COVID-19 Recovery options if:
  • they have not sent final documents for the homeowner to complete a COVID-19 home retention option under the previous waterfall as of August 22, 2021;
  • if the homeowner was previously ineligible for a COVID-19 home retention option; or
  • if the homeowner becomes delinquent due to the COVID-19 pandemic after reinstating their mortgage using a previous COVID-19 loss mitigation home retention option.
• President Biden's American Rescue Plan provides Homeowner Assistance Funds (HAF) through the U.S. Department of the Treasury. Servicers must inform borrowers that these additional resources may be available through their State. As permitted by the jurisdiction's HAF program, HAF funds may be used in connection with the Borrower's FHA-insured mortgage or any partial claim in a manner consistent with the respective mortgage documents and FHA requirements.

Reminders for Mortgagees about Fair Housing Act Obligations

Mortgagees are reminded that the Fair Housing Act prohibits discrimination because of race, color, national origin, sex (including sexual orientation and gender identity), religion, familial status, and disability. Mortgagees must avoid violations of the Fair Housing Act which can occur when there is disparate treatment of a Borrower because of race, or another characteristic protected by the Act or when there is an unjustified discriminatory effect because of a protected characteristic. For example, English-only communication procedures may have an unjustified discriminatory effect on Borrowers with limited English proficiency.

Mortgagees are also reminded of their obligations under the Fair Housing Act and the Americans with Disabilities Act (ADA) to make exceptions or modifications to rules, policies, practices, and services for Borrowers with disabilities who need them. Mortgagees should contact HUD's Office of Fair Housing and Equal Opportunity at 800-669-9777 (voice) or 800-927-9275 (TTY) if they believe FHA may need to consider a reasonable accommodation for a Borrower with a disability to any of the rules or policies described in this Mortgagee Letter. Mortgagees are further reminded of their ADA obligation to communicate effectively with, individuals with disabilities including individuals with vision disabilities who cannot read standard print notices and deaf individuals who use Relay Services to communicate by telephone.

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