The Federal Housing Administration (FHA) has additional streamlined COVID-19 recovery options to help homeowners financially impacted by the pandemic bring their mortgage current and remain in their homes.
The simplified COVID-19 recovery waterfall allows mortgage servicers to offer eligible homeowners who cannot resume making their mortgage payments a reduction in the principal and interest portion of their monthly payments.
The changes will provide those most in danger of losing their homes a path to recovery, including lower income individuals, families of color, and young, first-time homeowners who have disproportionately suffered economic hardships due to the pandemic, FHA said.
For homeowners who can resume making their existing monthly mortgage payments, FHA has established a revised COVID-19 Recovery Standalone Partial Claim.
Additionally, FHA is reinforcing that President Joe Biden’s American Rescue Plan Homeowner Assistance Funds (HAF), administered to the states by the Department of Treasury, may be used in connection with FHA-insured mortgages or subordinate mortgages as permitted by the jurisdiction’s HAF program and other requirements.
“Immediately upon taking office, President Biden prioritized the nation’s public health and economic crises by passing the American Rescue Plan,” Housing and Urban Development Secretary Marcia Fudge said in a release. “As Americans get back to work and our economy continues to recover, we are taking targeted steps to make sure homeowners impacted financially by COVID-19 have the support they need to remain in their homes. Housing affordability is at its worst and losing your home now would devastate households. These options for FHA borrowers will ensure equitable relief and recovery to people who need it most.”
New COVID-19 recovery waterfall
The new FHA COVID-19 recovery waterfall streamlines and revises FHA’s previous options for struggling homeowners, reduces required documentation, and allows mortgage servicers to provide greater payment reduction for eligible homeowners with FHA-insured Single Family Title II forward mortgages. The simple two-step waterfall options intended for properties that are occupied as the homeowner’s primary residence are:
- COVID-19 Recovery Standalone Partial Claim. For homeowners who can resume making their current mortgage payments, the COVID-19 Recovery Standalone Partial Claim allows mortgage payment arrearages to be placed in a zero-interest subordinate lien against the property that is repaid when the mortgage terminates, usually when the homeowner refinances or sells the home.
- COVID-19 Recovery Modification. For homeowners who cannot resume making their current monthly mortgage payments, the COVID-19 Recovery Modification extends the term of the mortgage to 360 months at a fixed rate and targets reducing the borrower’s monthly principal and interest portion of their monthly mortgage payment. The COVID-19 Recovery Modification must include a partial claim if the homeowner has partial claim funds available.
For properties that are not occupied by the owner, mortgage servicers must offer eligible homeowners FHA’s COVID-19 Recovery Non-Occupant Loan Modification, which extends the term of the mortgage to 360 months, or less if requested by the homeowner, at a fixed interest rate.
“This next step in the evolution of FHA’s COVID-19 response is a significant and meaningful way to help those homeowners who will be at a critical point in their recovery in the coming months and transitioning out of forbearance to permanent sustainable payments,” Principal Deputy Assistant Secretary for FHA and the Office of Housing Lopa Kolluri said. “We can help more homeowners who, through no fault of their own, continue to feel the financially impacts of the pandemic and are unable to make their previous mortgage payment amount. Deeper payment reduction is greatly needed for many of these homeowners to stay in their homes.
COVID-19 Recovery Waterfall Implementation and Homeowner Assessments
Servicers may begin offering the new COVID-19 recovery waterfall as soon as operationally feasible but must begin using the new waterfall for eligible homeowners within 90 days. In addition, servicers must re-review homeowners for the new COVID-19 recovery options in circumstances where an existing home retention option has not been completed, where the homeowner was previously ineligible for a COVID-19 home retention option, or if the homeowner has re-defaulted after a COVID-19 home retention option.
“FHA and mortgage servicers have a shared goal of helping as many homeowners as possible to return to sustainable homeownership, and the FHA team will continue to monitor closely the performance of our loss mitigation options to ensure that our policies successfully meet the needs of homeowners impacted by COVID-19,” FHA Deputy Assistant Secretary for Single Family Housing Julienne Joseph said.
The COVID-19 Advance Loan Modification
The changes work in tandem with the pre-waterfall FHA COVID-19 Advance Loan Modification (COVID-19 ALM) announced in June. The COVID-19 ALM requires mortgage servicers to review their FHA mortgage servicing portfolio and offer the COVID-19 ALM to eligible homeowners. Homeowners who choose to accept the COVID-19 ALM need to only review and sign and return the mortgage modification documents sent to them by their mortgage servicer.