The Federal Housing Administration (FHA) said Monday it is broadening its loss-mitigation options for borrowers struggling to make mortgage payments on their FHA-insured mortgages.
The enhancements extend FHA's COVID-19 loss-mitigation options to all eligible borrowers who fall behind on their mortgage payments, regardless of the cause. The updates also enable mortgage servicers to use the full 30% of FHA's partial claim option, rather than the previously permitted 25%, to help maximize the number of borrowers able to retain their homes.
The mandatory effective date of the changes is April 30, but mortgage servicers may begin offering these options to borrowers immediately, the FHA said.
"We are committed to ensuring that no FHA borrower experiences foreclosure unnecessarily," said Julia Gordon, assistant secretary for housing and federal housing commissioner. "FHA's COVID-19 forbearances and streamlined COVID-19 loss-mitigation options have successfully helped millions of struggling borrowers in the last two fiscal years alone. Our action … lets us capitalize on what we have learned through the pandemic to continue helping borrowers avoid foreclosure, regardless of the nature of their hardship."
FHA's loss mitigation work has significantly reduced its serious delinquency rate — in which a borrower is 90 or more days past due on mortgage payments — to 4.79% as of Nov. 30, 2022. In November 2021, FHA's serious delinquency rate was 7.83%, and at its highest point in November 2020 the rate was 11.9%.
The specific policy changes announced include:
For all FHA-insured Single Family Title II forward mortgages, FHA will:
- Extend temporary COVID-19 Recovery loss-mitigation options to all eligible borrowers, including non-occupant borrowers, regardless of the nature of their hardship. Servicers must assess all borrowers who are in default or who are at risk of defaulting (imminent default) using FHA's COVID-19 Recovery loss mitigation "waterfall" of options.
- Update the Partial Claim components of both FHA's COVID-19 Recovery Standalone Partial Claim and the COVID-19 Recovery Modification by raising the maximum partial claim amount from 25% of the mortgage's unpaid principal balance to the maximum 30% allowed by statute. FHA said the increase will help more borrowers who cannot return to making their current mortgage payments to reduce their mortgage balance to a level that permits them to achieve a target payment reduction of at least 25% despite today's higher interest rates.
- Extend the availability of FHA's COVID-19 Recovery loss-mitigation options for 18 months past the April 30 mandatory effective date for servicers. The temporary COVID-19 Recovery options were previously scheduled to expire at the official end of the COVID-19 National Emergency. This change removes the uncertainties associated with the timing of the end of the National Emergency.
- Expand the definition of imminent default to include borrowers who qualified for or used U.S. Department of the Treasury's Homeowner Assistance Funds (HAF). With this change, FHA said, servicers will be able to offer loss-mitigation options to borrowers who qualified for or used HAF funds and may no longer technically be delinquent but require further assistance to avoid redefault.
- Provide incentive payments to servicers for successfully completing COVID-19 Recovery options. FHA said incentive payments are part of its standard loss-mitigation options, but are not currently available to servicers for COVID-19 Recovery options. The incentives will help compensate servicers for the cost and effort of assisting borrowers with COVID-19 Recovery loss mitigation options, FHA said.
To simplify loss mitigation options for servicers and facilitate the transition to the COVID-19 Recovery loss-mitigation options for all eligible borrowers, FHA is temporarily suspending the use of its FHA-Home Affordable Modification (FHA-HAMP) options concurrent with today's Mortgagee Letter, the agency said.
From the start of fiscal year 2021 through Nov. 30, 2022, more than 1 million borrowers have obtained an FHA loss-mitigation home-retention option to help them return to sustainable mortgage payments and avoid foreclosure, FHA said.
