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FHA clarifies timing to review Covid-19 loss mitigation options for borrowers
On May 7, FHA issued a notice clarifying when it is appropriate to begin reviewing borrowers for loss mitigation options outlined in the “Review of Borrowers in a Pandemic-Related Forbearance for a Covid-19 Loss Mitigation Option.” The notice acknowledges that some mortgagees are unsure about when to start reviewing borrowers for Covid-19 loss mitigation options. The notice points out that FHA requires mortgagees to review borrowers for Covid-19 loss mitigation options “upon the completion or expiration of the borrower forbearance period.” For clarifying purposes, however, the notice highlights that mortgagees may review borrowers for Covid-19 loss mitigation options “at any point prior to the completion or expiration of their COVID-19 or other pandemic-related forbearance period.” Not only is it permissible for a mortgagee to undertake a loss mitigation review before the borrower exits forbearance, FHA actually urges mortgagees to review borrowers for available Covid-19 loss mitigation options “as soon as practicable as these options are designed to help borrowers resolve their delinquencies and avoid foreclosure.”
FHA streamlines mortgage servicing operational requirements
On April 19, FHA issued an update to Section III of the Single Family Housing Policy Handbook 4000.1, which streamlines many standard mortgage servicing operational requirements. The updates also incorporate FHA actions taken to support borrowers experiencing Covid-19-related financial hardships. The changes/updates include:
- A revised loss mitigation home retention “waterfall” to help servicers quickly review borrowers in danger of foreclosure for a permanent FHA Home Affordable Modification Program option without a lengthy forbearance. FHA noted in its announcement that this process “has been proven to be highly effective at helping borrowers avoid redefault and foreclosure.”
- Streamlined documentation requirements designed “to avoid unnecessary delays” and be more closely aligned “with standard industry servicing practices.” One example includes removing signature requirements on trial payment plans.
- A revised structure for certain allowable costs and fees corresponding with other industry participants’ fee structures.
The changes take effect August 17.
FHA: Temporary endorsement of mortgages under forbearance will expire March 31
On March 23, FHA issued a reminder regarding the upcoming expiration of the temporary guidance concerning endorsement processes for mortgages where a borrower was granted a forbearance related to the Covid-19 pandemic prior to the loan being endorsed for FHA insurance. As previously covered by InfoBytes, the temporary guidance—announced last June in Mortgagee Letter (ML) 2020-16—granted mortgagees the ability to submit a mortgage for insurance endorsement involving a borrower who is experiencing financial hardships due to the Covid-19 pandemic, provided the mortgagee “executes a two-year partial indemnification agreement.” The temporary guidance was last extended in ML 2020-45, and is set to expire March 31.
FHA removes LIBOR benchmark for adjustable-rate HECMs
On March 11, FHA issued Mortgagee Letter (ML) 2021-08 announcing changes for adjustable interest rate home equity conversion mortgages (HECMs) as the market transitions away from LIBOR. Among other things, ML 2021-08 (i) removes approval for using the LIBOR index for adjustable interest rate HECMs; and (ii) approves the use of the Secured Overnight Financing Rate (SOFR) index, permitting “mortgagees to commingle index types for newly originated annual adjustable interest rate HECMs when establishing the expected average mortgage interest rate using the U.S. Constant Maturity Treasury” and SOFR index. ML 2021-08 also states that LIBOR-based HECMs must close on or before May 3 to be eligible for FHA insurance.
Find continuing InfoBytes coverage on LIBOR here.
Agencies provide Texas winter storm guidance
On February 22, the Federal Reserve Board, OCC, FDIC, NCUA, and the Conference of State Bank Supervisors issued a joint statement covering supervisory practices for financial institutions affected by winter storms in Texas. Among other things, the agencies called on financial institutions to “work constructively” with affected borrowers, noting that “prudent efforts” to adjust or alter loan terms in affected areas “should not be subject to examiner criticism.” Institutions facing difficulties in complying with any publishing and reporting requirements should contact their primary federal and/or state regulator. Additionally, the agencies noted that institutions may receive Community Reinvestment Act consideration for community development loans, investments, and services that revitalize or stabilize federally designated disaster areas. Institutions are also encouraged to monitor municipal securities and loans impacted by the winter storms.
Additionally, HUD announced it will make disaster assistance available to Texas by providing foreclosure relief and other assistance to homeowners living in counties affected by the severe winter storms. Specifically, HUD is providing an automatic 90-day moratorium on foreclosures of FHA-insured home mortgages for covered properties in the affected counties and is making mortgage insurance available to those victims whose homes were destroyed or severely damaged. Additionally, HUD’s Section 203(k) loan program will allow individuals who have lost homes to finance the purchase of a house, or refinance an existing house along with the costs of repair, through a single mortgage. The program will also allow homeowners with damaged property to finance the rehabilitation of existing single-family homes.
FHA extends Covid-19 origination and 203(k) servicing flexibilities
On February 23, FHA announced the extension of several Covid-19-related flexibilities for single-family lenders and servicers through June 30, generally to continue to limit face-to-face contact as part of the mortgage origination process for FHA loans. Specifically, Mortgagee Letter 2021-06 extends the re-verification of employment guidance and the exterior-only appraisal scope of work option, while Mortgagee Letter 2021-07 will “allow industry partners additional opportunity to utilize flexible guidance related to” self-employment and rental income verification. Both extensions are applicable to Single Family Title II forward and Home Equity Conversion Mortgages. Additionally, FHA is extending temporary flexibilities “for the administration of 203(k) Rehabilitation Mortgage Insurance Program escrow accounts for borrowers in forbearance” for Single Family Title II forward 203(k) rehabilitation mortgages only.
FHA issues Covid-19 measures to protect borrowers
On February 3, FHA issued a series of temporary measures in its Single Family Housing Policy Handbook, which waive provisions that, among other things, normally require in-person contact between mortgage servicers and borrowers. These waivers, FHA states, are intended to allow mortgage servicing activities to continue in a safe manner during the Covid-19 pandemic, and augment FHA’s recent extension of its foreclosure and eviction moratorium for borrowers through March 31, as well as the agency’s decision to extend the deadline for impacted borrowers to request a new forbearance (covered by InfoBytes here). Specifically, the waivers build upon previous waivers and will allow the following provisions through December 31, 2021:
- Rather than conducting face-to-face borrower interviews, the waiver will allow substitute methods (such as phone interviews, email, video calling services, and other conference technology) for servicers to conduct borrower interviews for FHA-insured forward and home equity conversion mortgages (HECM) when performing early default interventions for borrowers in danger of foreclosure.
- FHA is waiving the $5,000 property charge payment arrearages cap for HECM borrowers who are behind on their property charge payments.
- FHA is waiving the requirement for servicers to obtain a physical signature on an occupancy certification from a HECM borrower.
DACA recipients eligible for FHA loans
On January 20, the Federal Housing Administration (FHA) announced that Deferred Action for Childhood Arrivals (DACA) recipients are now eligible for FHA loans. Specifically, FHA is waiving the FHA Single Family Housing Handbook statement: “Non-US citizens without lawful residency in the U.S. are not eligible for FHA-insured mortgages.” As previously covered by InfoBytes, in June 2019, Len Wolfson, the Assistant Secretary for Congressional and Intergovernmental Relations at HUD sent a letter to Representative Pete Aguilar (D-CA) stating that DACA recipients are not eligible for FHA loans under FHA published policy, referring to the handbook statement. FHA is now reversing course, stating that the term “‘lawful residency’ pre-dates DACA and thus did not anticipate a situation in which a borrower might not have entered the country legally, but nevertheless be considered lawfully present.” In order to avoid confusion, FHA is waiving the Handbook subsection containing the statement in its entirety, but emphasizes that all other FHA borrower requirements remain in effect for all potential borrowers, including DACA recipients.
FHA extends Covid-19 foreclosure and eviction moratorium
On January 21, FHA announced the extension of its foreclosure and eviction moratorium through March 31. The moratorium applies to homeowners with FHA-insured Title II Single Family forward and Home Equity Conversion (reverse) mortgages, excluding legally vacant or abandoned properties, which were previously set to expire on February 28. Additionally, FHA has also extended the public and Indian Housing (PIH) eviction and foreclosure moratorium until March 31. The extensions are reflected in HUD’s Mortgagee Letter 2021-03.
Additionally, FHA announced that it extended the date by which borrowers must engage with their servicer to obtain an initial Covid-19 forbearance to March 31 (details on the Covid-19 forbearance covered by InfoBytes here), and requires that mortgage servicers provide up to 6 months of forbearance or an additional 6 month extension of the initial Covid-19 forbearance. The extension is reflected in HUD’s Mortgagee Letter 2021-04.
FHA extends Covid-19 foreclosure moratorium and other flexibilities
On December 21, FHA announced the extension of several Covid-19-related flexibilities, which were set to expire on December 31. Specifically, FHA further extended its foreclosure and eviction moratorium through February 28. The moratorium applies to homeowners with FHA-insured Title II Single Family forward and Home Equity Conversion (reverse) mortgages, excluding legally vacant or abandoned properties. Additionally, FHA extended the date by which borrowers must engage with their servicer to obtain an initial Covid-19 forbearance to February 28 (details on the Covid-19 forbearance covered by InfoBytes here), and requires that mortgage servicers provide up to 6 months of forbearance or an additional 6 month extension of the initial Covid-19 forbearance. The FHA also extended (i) the timeframe for providing an insurance endorsement on single family mortgages in forbearance through March 31; (ii) the temporary re-verification of employment guidance and exterior-only appraisal inspection option through February 28; and (iii) temporary provisions for verification of self-employment, rental income, and 203(k) Rehabilitation Mortgage escrow accounts through February 28.