July 13, 2020
The COVID-19 situation in America means dealing with an ever-changing environment created by coronavirus and its’ containment measures. Economic impact of the virus outbreak has forced millions of home owners to seek economic relief including mortgage loan forbearance.
The First Round Of HUD Relief
The FHA and HUD created an initial round of FHA mortgage loan forbearance for those experiencing a loss of income and/or having trouble making mortgage payments as a result of the pandemic.
But the first announcement was followed by updates and refinements. And now there are further updates that can help borrowers keep their homes after an initial round of COVID-19 loan forbearance.
FHA Mortgagee Letter 2020-22 announces improvements and the establishment of foreclosure avoidance possibilities the FHA is calling “Home Retention And Disposition options” including:
- COVID-19 Owner-Occupant Loan Modification
- COVID-19 Combination Partial Claim and Loan Modification
- COVID-19 FHA-HAMP Combination Loan Modification / Partial Claim w/ Reduced Documentation
- COVID-19 Non-Occupant Loan Modification
- COVID-19 Pre-Foreclosure Sale (PFS)
- COVID-19 Deed-in-Lieu (DIL) of Foreclosure
The mortgagee letter says these new options “will greatly assist borrowers impacted, directly or indirectly, by the COVID-19 pandemic and provide streamlined loss mitigation for borrowers and industry partners.”
Help After Foreclosure Relief
FHA borrowers “experiencing an adverse impact on their ability to make on-time Mortgage Payments” due to the COVID-19 pandemic can petition their loan servicer, who must respond with terms of one or more “periods of reduced or suspended payments without specific terms of repayment”.
What do the new COVID-19 Home Retention Options allow? The lender and borrower can enter into an agreement on how to reinstate the mortgage following the period of loan forbearance.
Much depends on whether the borrower is able to financially afford to reinstate the loan or whether disposing of the property instead is the better option.
Loan Options For FHA Mortgages That Are Current Or Less Than 30 Days Past Due
In cases where an FHA borrower is able to resume their monthly mortgage payments and where the FHA home loan was “current or less than 30 Days past due as of March 1, 2020” may be eligible for a series of loan options that include (but may not be limited to):
- COVID-19 Standalone Partial Claim
- COVID-19 Owner-Occupant Loan Modification
- COVID-19 Combination Partial Claim and Loan Modification
- COVID-19 FHA Home Affordable Modification Program (FHA-HAMP)
- Combination Loan Modification and Partial Claim with Reduced Documentation
- COVID-19 Non-OccupantLoan Modification (where applicable)
Some circumstances might not be so flexible–when a borrower is not eligible for the above measures and cannot reinstate the mortgage, there are two options to transfer ownership of the property: the COVID-19 Pre-Foreclosure Sale(PFS) or COVID-19 Deed-in-Lieu (DIL) of Foreclosure.
In cases where an FHA borrower must exercise one of these options, the lender is required to complete a Loss Mitigation Option for eligible Borrowers “no later than 90 days from the earlier of the date of completion or expiration of the COVID-19 Forbearance”.
Remember that these measures require the participation of the lender; you will need to contact your loan servicer to make arrangements for both loan forbearance and any additional measures you may require following the initial forbearance period.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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