Coronavirus: Mortgage Relief If You Have an FHA-Insured Loan

If you have an FHA-insured mortgage, you have access to various mortgage-relief options if you’ve suffered a job loss, a reduction in work hours, illness, or other issues due to COVID-19.

The coronavirus (COVID-19) outbreak has 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 finding 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 foreclosure suspensions across the country. Plus, federal law usually protects homeowners from the initiation of foreclosure until they’re at least 120 days overdue on the loan.

Also, if you have an FHA-insured loan, you’re most likely eligible for a 12-month payment suspension or reduction called a “forbearance.” Borrowers with FHA-insured loans also have access to a number of loss mitigation alternatives through FHA’s “waterfall” process (described below). When the forbearance period ends, you might be able to reduce or adjust your mortgage payments permanently through a special loan modification program.

Forbearances for FHA-Insured Loans

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. The forbearance period will last up to 180 days and can be extended up to 180 additional days, provided that you request an extension during the "covered period" (see below).

Some servicers, however, are initially offering a shorter 90-day forbearance. Keep in mind that federal law provides extended relief—up to 360 days. If you need help enforcing your rights, consider hiring a foreclosure lawyer to help you.

What Is the "Covered Period"?

While the relevant section of the CARES Act doesn't define the term "covered period" during which you can ask for a forbearance, you should make your request before December 31, 2020, or the termination date of the COVID-19 national emergency declaration, whichever is sooner. This definition of covered period is set forth in a different section of the Act, which addresses forbearances in connection with federally backed loans on multifamily properties. If you want to get an extension on an initial forbearance, make your request before the original forbearance period ends. To learn more, see Mortgage Payment Relief During the Coronavirus Outbreak.

What Kinds of Loans and Properties Are Eligible?

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.

How to Get a Forbearance

To get a forbearance, you need to make a request to your loan servicer within the covered period 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.

Forbearance Isn't Forgiveness

Be aware that a forbearance isn't the same as loan forgiveness; you'll still owe the skipped amounts after the forbearance period ends. Usually, the servicer will take a lump-sum payment, offer a payment plan, or provide a modification in which the unpaid amounts get added to the loan balance. So, you probably don't want to request a forbearance if you can afford to make your payments.

Some servicers are telling borrowers they'll have to pay a lump sum when the forbearance is over. But in a Q&A for homeowners dated April 17, 2020, FHA stated "a lump sum repayment for the total missed payments is not required immediately at the end of the COVID-19 forbearance period." Instead, pursuant to Mortgagee Letter 2020-06, your servicer must evaluate you to see what loss mitigation options might be available. First, it has to evaluate you for a COVID-19 National Emergency Standalone Partial Claim (see below) no later than the end of the forbearance period. If you don't qualify, the servicer has to evaluate you for other loss mitigation options.

FHA’s Loss Mitigation Waterfall

Under the 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.

Forbearance

If you've suffered a financial hardship because of the coronavirus national emergency, you’ll most likely get a forbearance plan under the CARES Act, as described above. (Under normal circumstances, though, FHA usually allows a borrower to get an informal forbearance or formal forbearance plan, or, in some situations, a special forbearance for unemployed homeowners.)

Repayment Plan

The servicer will also evaluate whether the borrower has enough income to support a repayment plan.

Loan Modification

A modification permanently changes one or more of the loan's terms. A modification could:

  • reduce your interest rate
  • capitalize the overdue principal, interest, or escrow amounts, or
  • extend the time you get to repay the mortgage.

Although the federal Home Affordable Modification Program (HAMP) and its associated options have expired, FHA still calls its main loan modification program "FHA-HAMP."

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.

FHA offers a COVID-19 National Emergency Standalone Partial Claim as an option following a CARES Act forbearance. This partial claim option helps eligible homeowners reinstate their loans by authorizing servicers to advance funds on behalf of homeowners. The partial claim is, again, an interest-free subordinate mortgage that the borrower doesn't have to repay until the first mortgage is paid off.

Pre-Foreclosure Sale (Short Sale)

A pre-foreclosure sale (short sale) 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.

Deed in Lieu of Foreclosure

With a deed in lieu of foreclosure, 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.

How to Figure Out If You Have an FHA-Insured Mortgage Loan

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.

Talk to a HUD-Approved Housing Counselor or Foreclosure Lawyer

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.

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