The coronavirus (COVID-19) outbreak completely upended life in the U.S. With this national emergency limiting many people's ability to work and earn a paycheck, you might be among the thousands who found it difficult or impossible to keep up with mortgage payments. The good news is that most people won't face the prospect of losing their home soon, thanks to borrower protections that are in place until 2022.
Also, if you have an FHA-insured loan, you're most likely eligible for a payment suspension or reduction through what's called a "CARES Act" (or "COVID-19") forbearance. And after your forbearance ends, you'll also have access to a number of loss mitigation alternatives through FHA's "waterfall" process (described below).
Under the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act, homeowners with federally backed mortgage loans, including those with FHA-insured loans, regardless of delinquency status, are eligible for a forbearance. You may request an initial COVID-19 forbearance as long as the COVID-19 National Emergency is in place. The forbearance period will last up to 180 days (six months) and can generally be extended up to 180 additional days, longer in some cases.
Under official U.S. Department of Housing and Urban Development guidance, if the initial forbearance date is March 1, 2020 to June 30, 2020, you can get two six-month forbearances and two additional three-month forbearances. If the initial forbearance date is July 1, 2020 to September 30, 2020, you can get a three-month extension after the initial two 180-day periods. If the initial forbearance date is October 1, 2020 to June 30, 2021, you can only get two six-month forbearance periods. And you can get a six-month forbearance and six-month extension if your initial request is made between July 1, 2021, and September 30, 2021. If you request an initial 180-day forbearance on or after October 1, 2021, you can get an additional six months if the forbearance is exhausted and expires before the end of the COVID-19 National Emergency.
The right to get this kind of forbearance applies to mortgage loans secured by a first or subordinate lien on residential real property, including individual units of condominiums and cooperatives, designed principally for the occupancy of from one to four families.
To get a forbearance, you need to make a request to your loan servicer and affirm that you've suffered a financial hardship due to the COVID-19 emergency; the servicer can't require any additional documentation beyond your attestation.
During the forbearance period, the servicer can't add fees or penalties to your account, or charge interest beyond the amounts scheduled or calculated as if you made all contractual payments on time and in full under the terms of the mortgage contract.
Under the FHA's waterfall process, assuming you're still experiencing a financial hardship, you can most likely avoid having to pay all of the overdue amounts right away when a CARES Act forbearance ends. In this process, the servicer must, subject to a few exceptions, evaluate the borrower to determine which, if any, of the below alternatives are appropriate. The servicer has to evaluate the borrower for these options in a specific order. Once a borrower qualifies for a particular option, the evaluation concludes.
On June 25, 2021, HUD established the COVID-19 Advance Loan Modification (COVID-19 ALM). Servicers may immediately implement the COVID-19 ALM option but must implement it no later than 60 days from this date. Under this modification program, eligible borrowers get a minimum 25% reduction to their monthly mortgage payment's principal and interest portion.
The program is automatic and is a pre-waterfall step: lenders must review eligible borrowers for this option and provide loan modification documents that will significantly reduce the borrowers' monthly payments. Borrowers don't need to contact their lender or servicer to get this modification. To qualify, the property may be owner-occupied or non-owner-occupied, and the borrower must be 90 or more days delinquent. Borrowers who don't qualify for the COVID-19 ALM must be evaluated for the other COVID-19 loss mitigation options described below.
If the borrower indicates an ability to resume making their pre-hardship mortgage payment, say, after their existing COVID-19 forbearance ends, servicers must review the borrower for a COVID-19 Recovery Standalone Partial Claim. A partial claim is an interest-free loan from HUD that brings a first mortgage current by paying the overdue amounts. You don't have to repay the loan until the first mortgage is paid off, like when you sell the property. Sometimes, the servicer will complete a partial claim along with a modification.
The COVID-19 Recovery Standalone Partial Claim is limited to 25% of the borrower's unpaid principal balance.
If the borrower can't afford the monthly payment amount and needs a loan modification, the servicer must evaluate the borrower for a COVID-19 Recovery Modification. This kind of modification aims to reduce the principal and interest portion of the monthly mortgage payment by at least 25%. The COVID-19 Recovery Modification is a 360-month modification, and includes a partial claim, if available. This kind of modification is available to owner-occupied properties and properties that are not owner-occupied, like rental properties, secondary residences, and vacation homes.
If you don't qualify for any of the previous options, you might be eligible for a "preforeclosure sale" (short sale). This is when the borrower sells the home for less than the outstanding loan balance. The lender can't get a deficiency judgment after an FHA pre-foreclosure sale.
Or you might qualify for a "deed in lieu of foreclosure." With this option, the borrower trades the home's deed to HUD in exchange for a release from all obligations under the mortgage. Like with a pre-foreclosure sale, the lender can't get a deficiency judgment after a deed in lieu.
Probably the easiest way to find out what kind of loan you have is to call your loan servicer.
You could also look for an FHA case number on your mortgage contract. Sometimes, though, loans lose their FHA-insured status. Call your servicer or HUD's National Servicing Center at 877-622-8525 if you have questions about your loan's status. You can also check your billing statement to see if you pay a mortgage insurance premium (MIP). MIP is what FHA calls its mortgage insurance. If you're paying MIP, then you have an FHA-insured loan.
To learn about different ways to avoid a foreclosure, consider talking to a (free) HUD-approved housing counselor. A housing counselor can help you understand the specific options available to you if FHA insures your loan, or if another entity owns or guarantees your home loan. You can also call your servicer to learn about available relief.
To learn about foreclosure laws and procedures in your state, including how long the process takes, talk to a foreclosure attorney.
If you don't have an FHA-insured loan, most servicers (on behalf of the loan owner) are offering various alternatives to help homeowners get through the COVID-19 crisis, like forbearance agreements and modifications.