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Financial Services Law Insights and Observations

HUD proposes 40-year term for loan modifications

Agency Rule-Making & Guidance HUD Federal Register FHA Mortgages Fannie Mae Freddie Mac Consumer Finance

Agency Rule-Making & Guidance

On April 1, HUD published a proposed rule in the Federal Register to increase the maximum term limit allowable on loan modifications for FHA-insured mortgages from 360 to 480 months. According to the proposed rule, the update would allow mortgagees to provide a 40-year loan modification option to borrowers who may not qualify for loss mitigation options and is intended to help borrowers experiencing a financial hardship, including those impacted by the Covid-19 pandemic, obtain affordable monthly payments. The proposed rule noted that “[i]ncreasing the maximum term limit to 480 months would allow mortgagees to further reduce the borrower’s monthly payment as the outstanding balance would be spread over a longer time frame, providing more borrowers with FHA-insured mortgages the ability to retain their homes after default.” Additionally, the proposal would align FHA with Fannie Mae and Freddie Mac, “which both currently provide a 40-year loan modification option.” Comments are due by May 31.