September 21, 2019

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HUD Announces Expanded Disaster Relief Options

HUD Announces Expanded Disaster Relief Options

The FHA and HUD have announced expanded disaster relief measures for those in federally declared major disaster areas.

The changes (see below) must be implemented no later than November 30, 2019 but may be used by lenders right away. The FHA and HUD advise these changes will be reflected in a pending update of the FHA Single-Family Loan Handbook, HUD 4000.1.

On Thursday, August 29, 2019, the Federal Housing Administration announced in a press release that the agency is, “expanding its foreclosure prevention options to allow borrowers in Presidentially Declared Major Disaster Areas (PDMDAs) with delinquent FHA-insured mortgages to bring their mortgages current without increasing their interest rates or principal and interest payments.”

This is an expansion/enhancement of a temporary measure announced in 2018; Mortgagee Letter 2018-01 “temporarily amended” FHA/HUD Loss Mitigation procedures for FHA borrowers in Presidentially-Declared Major Disaster Areas including those announced for Hurricane Harvey, Hurricane Irma, Hurricane Maria, plus wildfires and other natural disasters in California.

The 2018 expansion “streamlined income documentation and other requirements to expedite loss mitigation relief for affected borrowers”.

It also started the use of something known as a Disaster Standalone Partial Claim intended to help eligible borrowers who have an FHA loan forbearance “resume their pre-disastermortgage paymentss and avoid payment shock”.

Those 2018 changes are now being added to the FHA/HUD rules and will “further streamline” HUD is now incorporating changes into Handbook 4000.1 that further streamline and revise these disaster-related loss mitigation issues.

“Today we take another important step to help families with FHA-insured mortgages recover from the impact of a major disaster and to avoid foreclosure,” said Federal Housing Commissioner Brian Montgomery, who was quoted in the press release.

He adds, “The changes we’re making to our policy will help individuals and families with an FHA-insured mortgage to cure their delinquencies while protecting our insurance fund in the process.”

The short version of all this is that the FHA “Disaster Standalone Partial Claim” is being made a permanent, standard mortgage relief option for those who have endured natural disasters in all federally-declared disaster areas.

The FHA states that the partial standalone claim is a mechanism for further evaluation for permanent loss mitigation solutions for those who want to “cure” delinquency, get caught up on mortgage payments, and get evaluated “for a permanent loss mitigation solution” that does not require the borrower to modify the loan or extend the term of the mortgage.

According to the FHA/HUD press release and mortgagee letters, the FHA Disaster Standalone Partial Claim option “covers missed mortgage payments up to 30 percent of Unpaid Principal Balance (UPB) through an interest-free subordinate lien on the mortgage, payable only when the borrower sells the home or refinances their mortgage”.

There is no trial period, no balloon payment required, and the Partial Claim streamlines the loan approval process including income documentation. We will examine who qualifies for this disaster relief and how it may be applied for in a future blog post.

Bruce Reichstein - Staff Writer

By Bruce Reichstein

August 30, 2019

Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.

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