Skip to main content

FHA Temporarily Reverses Policy On Insurance Due To Forbearance

Jun 08, 2020
Photo credit: Getty Images/ThitareeSarmkasat

The Federal Housing Administration announced a new, temporary policy that provides guidance for lenders to obtain FHA insurance endorsements on mortgages where the borrower has requested or obtained a COVID-19 forbearance. This policy, found within Mortgagee Letter 2020-16, will ensure that the safeguards of the FHA program continue to work for new homeowners facing financial hardship due to COVID-19.
 
Mortgagee Letter 2020-16 temporarily reverses the current FHA policy, which states mortgages that are in forbearance are not eligible for FHA insurance.
 
The temporary policy recognizes that there are borrowers who met all FHA requirements for a mortgage at the time of closing but were adversely affected by the COVID-19 pandemic before the agency was able to endorse the loan for insurance. This policy will also help lenders, particularly small- and mid-sized community-based lenders, to better manage the potential liability of having to hold uninsurable loans.
 
“FHA has continually been at the forefront of providing assistance and assurance for borrowers, lenders, and the mortgage market since the coronavirus pandemic began,” said HUD Secretary Ben Carson. “Today’s announcement will give borrowers, lenders, and the market peace of mind.”
 
The agency will require lenders to provide an indemnification agreement to FHA for 20% of the original mortgage amount, which only becomes payable if the mortgage goes into foreclosure and results in a claim to the FHA Mutual Mortgage Insurance Fund. The indemnification agreement is between the lender and FHA and will generally result in a reduction of the claim amount FHA would need to pay to the lender for defaulted mortgages. The agency will not require upfront payments by lenders or a change to FHA mortgage insurance premiums for these mortgages.
 
“Maintaining a solid foundation to ensure the availability of FHA insurance during this difficult time for the nation includes helping lenders who are the mainstay of community-based lending to manage through the current economic environment,” said HUD Deputy Secretary Brian Montgomery. “This policy helps address current and future capital issues for all lenders, including those who are not equipped to hold mortgages on their balance sheets for extended lengths of time.”

 
About the author
Published
Jun 08, 2020
Some Question Lenders’ And Others’ Readiness To Use VantageScore 4.0

Following FHFA announcement Tuesday, doubts arise regarding potential changes that may be needed to move to VantageScore credit scoring

HUD Freezes Foreclosures On FHA Mortgages In Texas Flood Zone

Kerr County homeowners among hardest hit in disaster that’s claimed more than 100 lives

Jul 09, 2025
Fannie, Freddie Now Allow Lenders To Use VantageScore 4.0

Lenders will keep tri-merge credit scoring model; what this shift means

President Trump Signs Big Beautiful Bill — Here's What It Means For Mortgage And Housing

What you need to know about the law as a mortgage professional and share with your clients

FHFA Chief Officially Calls For Investigation Of Federal Reserve Chairman Powell

Alleges Powell lied in testimony to Congress regarding Fed building renovations, says Fed Chair should be fired

BBB Will Impact Homeowners, Buyers

U.S. House and Senate must agree on certain tax, mortgage insurance premium deductions