The FHA and HUD have announced policy changes to the FHA Single-Family home loan rulebook, HUD 4000.1. These changes were announced in FHA Mortgagee Letter 2020-06 and address loss mitigation procedures specifically for COVID-19 related economic hardship.
The prior version of HUD 4000.1 did not include specific guidance for lenders trying to help borrowers avoid foreclosure due to coronavirus issues; the old instructions are updated to include policies for lenders to help borrowers via CARES Act measures signed into law to help struggling companies and workers.
The new additions to HUD 4000.1 include a new Section addressing the “Presidentially-Declared COVID-19 National Emergency” guidance for lenders, which is effective immediately takes precedence over disaster relief guidance issued prior to the pandemic.
FHA loan rules for presidentially declared major disaster areas in the past (known by the acronym PDMDA) didn’t have the added complication of additional relief measures incorporated into the CARES Act. Those measures required the FHA to put more specific language into HUD 4000.1.
From the FHA Mortgagee Letter, we learn:
“For Borrowers impacted by the COVID-19 National Emergency and whose Mortgaged Property is located in a COVID-19 PDMDA,” the new and updated FHA policy for FHA borrowers applies instead of the more general guidance for PDMA. Participating FHA lenders who were using the previous broader, non-coronavirus specific guidance are required to “convert to the COVID-19 National Emergency Loss Mitigation Options” in the updates.
That requirement applies for this emergency only. Future issues will likely be addressed in a similar manner depending on circumstance.
The text of the updates is too detailed to post here but one example of the instructions participating FHA lenders are getting includes the following:
“Any Borrower who is granted a ‘Forbearance for Borrowers Affected by the COVID-19 National Emergency’ and is otherwise performing as agreed is not considered to be delinquent for purposes of credit reporting.”
That’s not all–the new guidelines require participating FHA lenders to comply with the credit reporting requirements of the Fair Credit Reporting Act (also known as FCRA) but at the same time they encourage financial institutions “to consider the impacts of the COVID-19 National Emergency on Borrowers’ financial situations and any flexibilities a Servicer may have under the FCRA when taking any negative credit reporting actions.”
You will not qualify for these loss prevention options indefinitely, borrowers who miss too many payments don’t have the range of options those who act before missing a payment have; do not cheat yourself out of the option of saving your home.
If you have already missed a payment on your FHA mortgage, or are in danger of missing one, contact your loan servicer and do not delay.